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It is not unusual for small business owners to encounter issues with cash flow.  In today’s economy, the business owners customers are often in a slow-pay cycle and are often paying invoices much later and this can cause a cash-crunch for the small business owner.

Banks that were making micro-loans for payroll, taxes, supplies, equipment, etc., to the business clients are now declining those loan requests due to the turmoil in the economy.  This further amplifies the cash flow challenges of the business owner. 

With banks now declining loan requests and even capping credit lines and with customers in a slow-pay status, many small business owners are seeking alternative financing solutions for their business cash flow situations. 

A solution that business owners are embracing more often now is Invoice Factoring.  Invoice factoring or receivables financing, has been around for literally hundreds of years, but not known by many small business owners.  The reason that they are not familiar with Invoice Factoring is that their banker does not reach out to them and offer this solution and educate them as to the viability in relieving cash flow problems.  Many banks do not offer Invoice Factoring at all.  The banks that do offer factoring are only offering it as a solution to their very largest business clients that are factoring hundreds of thousands of dollars of invoices every month, week or even every day.  With smaller billing volumes, most small business owners do not qualify for their bank’s factoring program (if offered at all by the bank).  As such, no one from the banking community is calling on the small business owner to educate them about the benefits of Invoice Factoring.

However, the good news is that there are alternative Invoice Factoring companies (called Factors), that specialize in factoring for the small business owner.  They actively factor invoices for small business owners all across the country.  Some factors specialize in small monthly dollar volumes in the $10,000 to $15,000 range.  Others seek volumes with minimum billings in the $25,000 to $100,000+ per month.  All small factors can/will syndicate with other larger factors if the business client grows their billing volume beyond their funding parameters.

Invoice factoring will help grow the business… and then provide more cash as the business grows.  The more invoices proffered, the more cash available in as little as two working days. 

Other important benefits of Invoice Factoring…

1. The factoring decision is based on the credit history of the business owner’s clients, not the business owner.

2. Factoring is off-balance-sheet financing and does not add debt to the business financials.

3. Factoring will improve the business credit rating of the company.

4. Factors can often assist companies that are in a work-out situation.

5. Factors can often assist companies that have tax liens if the taxing agency will subordinate behind the factor.

6. Factoring provides cash-in-hand that the business owner can use to get cash discounts, and volume discounts from suppliers.  These cash and volume discounts will often offset all or part of the factoring costs.

7. Factors often work with Purchase Order finance companies to facilitate large orders that the business owner would otherwise not be able to bid on.

8. Factoring offers an opportunity for the small business owner to compete for larger deals where the customer demands payment terms.

9. Once approved by the factoring company, business owners can accelerate their cash flow as often as they like simply by submitting invoices for processing.

10. The initial approval process takes 7-10 days, not 2-3 months like a bank… and funds in 24 hours as needed.

General Factoring is done for all types of manufacturing and service companies.  There are also specialized factoring companies that will factor Medical and Construction Receivables.

Summary  Is Invoice Factoring a solution for your company?  If your company is providing goods and services to other businesses and government entities such as municipal, county, state or federal agencies, your business is a good candidate for invoice factoring.  So, if you are faced with a cash flow problem, you can relieve that problem by accelerating cash flow with invoice factoring… and grow your company with the cash-in-hand.

Robert Jacobs is an Account Executive with Compound Profit.  Mr. Jacobs helps small to medium size business owners get capital for growth and cash for operating expenses… when the bank has to say no.

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