If you own a business with good profits, stable revenue streams, or have equity in a building filled with equipment, then you will likely qualify for a small business loan. But what if you are a startup or in the growth phase of your business? Often these businesses cannot qualify for financing through the normal channels. Especially since access to credit has gotten tighter for small business owners over the last few years. Receivables factoring offers an alternative to small businesses that can be the “life line” of their success!
Unfortunately, the term factoring is often thought of as a “last ditch effort” form of financing. Many small business owners are concerned that factoring their receivables will leave both their employees and customers with the impression that the business is in financial hardship. In reality, factoring is most often used by businesses that are experiencing significant growth.
Factoring is definitely not the ‘red flag’ that some business owners unknowingly fear. The reality of our current economic climate is that many businesses, both small and large, are struggling to improve their cash flow and factoring can help. There is not a sector of the business community that isn’t considering creative ideas of reinventing some aspect of their business model. For example, some businesses have utilized telecommuting or job share to prevent downsizing. Other firms have begun outsourcing to help with their personnel needs while avoiding payroll expenses. Other small businesses that do not have a working relationship with a lending institution have begun to search out alternative forms of financing.
Factoring is a convenient alternative for small businesses to instantly improve their cash flow. Factoring utilizes the credit worthiness of the customers of the client, as opposed to relying on their businesses financial statements. This allows a business with a strong customer base to get funding based on the strength of their customer base and invoices. Receivables factoring is a tremendous tool to bridge the gap while a startup or growth phase business builds their financial strength.
We are in the business of providing just such a bridge for small to medium sized businesses that need a little help to build a credit history that will allow them to qualify for the traditional bank loan. We would welcome the opportunity of assisting you, or anyone that you know that could benefit from some working capital to move their business to a more financially stable position.
I recently read an article online at www.BusinessInsider.com. The article sited research done by the U.S. Census in a Survey of Business Owners. The survey indicated the resources that small business owners are tapping into to keep their businesses moving forward. There were seven options discussed;
1. The majority (51.2 percent) of small employers needing money to expand use either their own or family members’ savings or assets.
2. Business profits or assets are a key source of money to expand; 29.1 percent of small employers use this source of expansion financing.
3. Banks are an important source of expansion capital for small businesses; just shy of one-third of small business owners report using a bank loan to finance expansion.
4. Credit cards, both personal and business, are a common source of money for small business expansion, with one quarter of small employers needing expansion funds obtaining at least some of it from this source.
5. More than one-in-ten (11.4 percent) of small business owners report using equity in their homes to finance small business expansion.
6. Government-guaranteed loans and loans from the government, such as SBA loans, aren’t a source of expansion capital for many businesses; the SBO data show that less than 3 percent of small businesses needing expansion capital get money from this source.
7. Almost no small employers use venture capital to expand; the SBO data reveal that only about 0.5 percent use this source of financing.
I am uncertain if the “assets” mentioned were referring to factoring of receivables, but thought that would have made the article more informative. Factoring is a terrific financial tool for small business owners to utilize. One of the greatest benefits of this type of financial tool is that the business owner can get cash flow moving, without incurring debt. In the ‘cash is king’ reality of business, it is great to know that there is flexibility in obtaining the financing to keep the cash flowing and business growing. We are committed to providing working capital for growing businesses.
In the current information age, it seems that every one is rushing to their computer to blog, Facebook, Tweet, or whatever their chosen avenue to the information highway. I recognize the value of an online presence, as long as there is value added. I do not, however, advocate social media involvement for the sake of social media. I believe that it is only worth taking the time to post, blog, etc., if you have something of value to say. Relevancy is not a new concept, but it is one that bears consideration. Relevancy should drive your content, since it allows you to add value to your relationships.
In order to keep your content relevant it is a good idea to work toward a better understanding of your clients’ needs and interest. If you want to position yourself as the go-to person for your client base then you should show them that you understand what they need and how you can help them address that need. You can do this by gearing your offerings to your clients’ pain points and ensuring they are aware of how they will benefit from your offerings. This can be done by talking about what you have to offer in the social media arena. Then go a step further and explain how you are standing ready to partner with those seeking your goods or services. Make sure that your social activity is generating personal relationships.
Most businesses have an online presence and are actively engaged in social media activity. Ensure that you are delivering relevant content and make yourself the expert on your goods or services. That is the key to standing apart from the crowd and defining yourself as the go-to provider.
There are two catch phrases that get bandied about in the small business community a lot; Cash is King and Relationships Matter. We are in the business of helping you understand and improve your rapport with the ‘CASH IS KING’ mantra, but we all need to remember the importance of relationships to our small business. It is imperative that we do not sacrifice one for the other; we need to ensure that we are pursuing both goals with equal zeal.
Since the inception (and probably prior to that) of your business, I imagine that you were very aware of the importance of relationships with your clients/customers, employees/co-workers, and vendors. It cannot be overstated that if you do not have good relationships you will probably struggle to grow your business. With the advent of the social media tools at our disposal it is becoming easier to connect and build relationships with those we serve and would like to serve. Be it goods or services, a web presence affords you more exposure and is becoming increasingly vital to give you the leg up needed to be successful in business. That ‘web presence’ doesn’t just mean simply having a .com (or net, or biz…) it means that you need to be actively engaging your audience.
Don’t lose the focus of why you are engaged with social media. It is not about the media outlet as much as it is about ensuring that you are connecting, adding value to your clients/customers by what you have to share. We are all trying to maximize our time. Sharing tips that add value, we are helping each other reclaim valuable time. How many of us have heard the phrase, “Well that’s time I can’t get back!”? If you are sharing content, try to ensure that you are offering quality content. If you set yourself up as the go-to person then you are adding value to your offerings and driving traffic to your business, by way of your web presence. This situation is a win-win for you, your business, and those that you build relationships with.
It is essential to every business, small, medium, or large, to develop a great customer base. If you are not standing apart then you are in danger of being swept away. How are you distinguishing yourself in the marketplace? You must find a way to become indispensable to those that use your goods or services. If you are lucky enough to have captured the corner on a particular widget, that only you can provide, that is great… but remember, as fast as life moves, the next great thing is just around the corner. Relationships, in business or on a personal level, are the things that drive us to success. If you want to drive your business to a new level of growth and success, then you need to find a way to make your business indispensable to your customers.
No matter how far you feel that you have stretched to understand your customers, try going further. I am not referring to following them home at night, or Facebook stalking them, but I am talking about finding out what you need to do to become their go-to person. I am talking about making a mindful decision to listen and commit to allowing your clients/customers to drive your marketing decisions. Marketing is not just about growing your business… it is also about adding value to your offerings. If you are not providing something that adds value to your client/customer then you are not “bookmarking” your business in their personal search engine. Providing a personal experience of value added goods and services will set you apart in the marketplace and ensure that they think of you first when it is time to purchase again.
“Cash is King” we all know that, or at least should, because we certainly hear it enough. Cash flow is undisputedly the key for small business success. You can have a great product, or provide the best service, but if you don’t have good cash flow practices in place you will not stay in business long… let alone grow your business. Are there tried and true ways to improve your cash flow? I believe the answer is “YES”. Sometimes improvements to cash flow can be as simple as making minor changes to the wording on your invoices or changing the manner in which you follow up on past due invoices.
We are in the business of providing alternative financial products to assist small businesses to keep the cash flowing and their businesses growing. In conjunction with invoice factoring, we also assist some of our clients in their collection efforts. We have, over time, found that a certain approach is pretty successful in getting some slow payers to comply with our requests for payment. I have a few recommendations that have worked well for us.
- Rework the wording on your invoices. Far too many invoices have a small box stating “Net 30 (15 or 60)”. It is our experience that if you replace the phrase “Net 30” with the phrase “Due in 30 days”, that is often viewed as more of a call to action… a call to action that may well ‘net’ you a quicker payment.
- Along the same lines is the “Due upon Receipt” phrase. Unfortunately, far too many people think that “Due upon receipt” = “Whenever you want to”. That interpretation can land your invoice in the “when I get around to it” pile… not a good place to ensure payment. Steer clear of such vague terms; provide a specific deadline for your expectation of payment. “Due in 30 days” works well and can actually get you paid faster than the implied immediacy of ‘Due upon Receipt”.
- Above all… BE POLITE! Research suggests that being polite engenders more positive feelings from those that you are collecting from, as well as ensuring that people will continue to work with you and take your calls. “Please pay your invoice by (date)” and “thank you for your business” can decrease the number of days that it takes to get paid while also increasing the number of invoices that are being paid.
While we are in the business of providing alternate financial solutions to small businesses feeling the pinch of cash flow issues, we also consider ourselves information providers. If we share tips and tricks for business success, then we all might enjoy business growth. Do you have other suggestions as to how you have improved your receivables processes? Please share.
Have you heard the phrase that you need to work smarter, not harder in order to be successful in business? I think we all have. Small business entrepreneurs often find themselves in the position similar to that of a new parent – after all, that new business is your ‘baby’. We are often so excited about the milestones our business reaches, we often forget about the long hours and sleepless nights. Entrepreneurs focus on a company website going live, first client, first contract, and other such business milestones. If you are still putting long hours and having sleepless nights then it is time to re-evaluate. Often times learning to delegate and manage your time more efficiently can give you back the time that you are missing.
There are a limited number of hours in a day. You also need to realize that there are some other hard and fast limits that need to be respected: how many clients you can serve, how much territory you can cover, and the fee that the market will support for you to charge for your goods/services. When you find yourself at capacity in one or more of these areas, then it is time to realize that you need to try on the role of management.
If you find that you don’t know how to let go, don’t know when to let go, or simply don’t want to let go. It is worth asking the question as to what you got into business for. If you went into business for the sheer passion of what you do (the good/service you have to offer) then you have defined your satisfaction. If you want to experience business success and grow your business to new heights then you should consider delegating some of your tasks, expanding your business, and recruiting some new team members.
If you are feeling growth pains, and find that working capital is holding you back, then you should check out a partnership with our team. We specialize in helping new or growing businesses acquire working capital to meet their business growth goals.
A new business was opening and one of the owner’s friends wanted to send him flowers for the occasion. They arrived at the new business site and the owner read the card, “Rest in Peace.”
The owner was angry and called the florist to complain.
After he had told the florist of the obvious mistake and how angry he was, the florist replied,
“Sir, I’m really sorry for the mistake, but rather than getting angry, you should imagine this, ‘Somewhere there is a funeral taking place today, and they have flowers with a note saying, ‘Congratulations on your new location.’”
*Thanks to Pastor Tim for this joke!* – YOU MAKE ME LAUGH
Small businesses, especially those in the start-up or growth phase, do not have a strong credit history. A lack of credit-worthiness can be an enormous hindrance to obtaining financing. If a business, small or large, is unable to get working capital from a traditional banking relationship they are seriously hampered in their ability to be successful.
Financial uncertainty and the accompanying upheaval is the greatest hurdle to business growth. The current unpredictability of our nation’s financial situation only exacerbates the problems in the small business sector. Poor cash flow hinders access to working capital. Without working capital a business can’t hope to grow… or even be very successful. An invoice factoring firm can be just the solution to breath cash flow into a small business.
An invoice factoring firm can offer alternative financial options to work around cash flow issues. By utilizing the current outstanding invoices a factoring firm is able to generate working capital in such a way as to not incur additional debt for the business. In addition, factoring is a great form of alternative financing for businesses, because it allows the business owner to control cash flow by determining how much to factor, and when. It eliminates the cash-flow uncertainty that many small businesses face, allowing some predictability in the month-to-month financial outlook.
Start-ups and growing businesses face a number of hurdles in keeping the cash flowing. Most new or growing small businesses do not have vast reserves of cash to fall back on during the lean times. They must instead rely on banks or other forms of loans to keep the cash flow moving. I recently read a study that reported the approval rate for business loans is approximately 10%. That is certainly on the high side for start-ups.
My firm is not only in the business of providing working capital to growing businesses, but we also like to try to help the small business owner equip themselves with information about trends and topics that interest the entrepreneur. Knowledge is power… and cash is king!
Here are some valuable tips that merit consideration for running your business from a financially savvy perspective:
1. Consider ways to increase your cash flow and improve your credit worthiness
Work on keeping your cash flow in good shape. Better cash flow = a better track record as far as your creditworthiness. The main idea here is that you stay on top of your cash flow; if you keep yourself educated about your cash flow you are better equipped to handle a surprise. Simple steps like this can help you manage your cash flow and keep you more flexible.
2. Work with your vendors to see if they offer prepayment discounts.
This simple idea can save you a lot on your bottom line and can also move you toward a position of good creditworthiness. Those vendors can offer a good recommendation on your payment record.
3. Watch your overhead and cut costs where you can.
Do you really need an on-site bookkeeper? With the current technological advances, there are many tasks at your office that you may well be able to outsource. Whether it is telecommunicating or just availing yourself of the services of subcontractors, you will be able to decrease your overhead by utilizing subcontractors for tasks that don’t require full time staff, and that will result in an improved bottom line. You will realize savings because 1099 subcontractors are responsible for their own tax liabilities. You also will not be paying benefits such as vacation, sick time, insurance, etc. and that is a great cost savings.
4. Drive your accounts receivable
If you provide goods or services you need to ensure that you are being paid for those. If you don’t take your invoicing / collections seriously then your customers are not likely to take their payments seriously. There are a number of small business owners that are great at providing the goods and/or services that they are passionate about, but fall short when it comes to the back office tasks of collecting for their invoices. Often times it just requires a simple phone call to bring the errant payment to light. Past due follow up doesn’t have to be a painful task, after all you are simply requesting payment for what you have provided… that is perfectly reasonable. If the business owner approaches it from the standpoint that you need to ensure 1) your customer received your invoice and hasn’t mislaid it and 2) that they didn’t have a problem with what you provided. That is often enough to get the customer to follow up with payment.
I hope that you can implement these simple steps and move your way to business success and growth. If you have some additional tips that you would like to share, please feel free to comment.