I read a lot about  the shape of the economy from the viewpoint of small business owners. The biggest hurdle that the entrepreneur faces is “Cash Flow”. That is the most pressing problem faced by small business. We all know that cash is king and cash is the life blood of any business. The economic recovery appears to be gaining steam, but what does that mean for the business owner?

Most business owners, when faced with cash flow shortfalls, respond by cutting back the number of employees, reducing the benefits to their employees, or even decreasing their offerings in terms of goods and/or services. The latter is not due to choice, but rather a simple failure in keeping up with the demand. Put simply, if a business owner does not have the cash to procure raw materials, or pay employees, something has to give.

There are a number of reasons for the cash flow crunch that is hovering over the head of many a small business owner, but the two that I am hearing the most about are the reductions in funding options and receivables aging. Currently many small business owners find that their lines of credit and/or their current loans have either been reduced or called in early by the lender. There is also a trend in business for companies to push the payment of invoices out to 60 – 90 days… some even further.

Invoice factoring is an option to the standard banking relationship, particularly helpful for those small businesses that have either not been in business long enough to establish a banking relationship, or are in the growth phase of business. A receivables factoring company provides a small business the option of building their credit-worthiness. We at American Funding offer the necessary financial tools to assist the small business owner to grow their business to success.

Factoring receivables is such a simple concept to grasp, and an incredibly easy tool for businesses to utilize. Whether in the startup or growth phase of your business, cash flow is a major concern. Once a business owner needing cash flow assistance understands the point behind this alternative financial tool, they will wonder why it took so long to add it to their small business arsenal.

I’m always looking for a simple way to explain factoring receivables. Factoring receivables allows the business owner to alleviate cash flow concerns. The way they do this is by partnering with a factoring firm that advances up to 80% of the value of their outstanding invoices. This is not a loan and therefore allows the business to avoid incurring additional debt. Another consideration is that, unlike a traditional bank loan, the client can have access to funds usually within 24 hours.

Often times a business owner will feel that being turned down for a bank loan closes the door to cash flow assistance. The factoring firm evaluates the creditworthiness of the client’s customers. This allows a business that has not established their own creditworthiness to build ‘bankability’, while being about the business of running their business. In this way a receivables factoring provider is offering a lifeline to the startup or growing small business.

If you or someone you know could benefit from working capital to ease a cash flow crunch, consider receivables factoring… a great alternate financial tool for the small to medium business owner.

It is imperative that a business owner understand cash flow and how it drives the business. There are three basic considerations for understanding the rhythm of the cash flow of a business.

• Cash In – It is imperative to track the money into the business. This is best done with an accounting software package which can track your receivables.
• Cash Out – The flip side of cash in. This is an accounting of the money flowing out for such things as rent, cost of goods sold, compensation for employees, etc.
• Forecasting – This is especially important for seasonal businesses such as lawn services, contractors, etc. To recognize the trends in cash flow will help the business owner plan for lean times and adjust cash flow to compensate for those.

Whether starting or growing a business, in a seasonal or year round niche, there is a definite rhythm to cash flow. The rhythm of cash flow can make or break the business. To be successful, the business owner must recognize and work within the constraints of the cash flow rhythm of their particular business.

As an owner of a factoring business, I like to provide as much information as possible on how factoring receivables works.  One question that occasionally comes up, both from potential clients and people interested in my business “What will customers think?”   Put more simply, “How will factoring receivables affect my relationship with my customers?”

Some people have the mistaken idea that only businesses in financial crisis work with factoring companies.  Nothing could be further from the truth.  In contrast, most small businesses utilize factoring because they are growing too fast!   I commonly refer to this scenario has small businesses experiencing “Growing Pains” that result in the need for factoring.  More and more, as people are getting more educated on factoring receivables, they are finding factoring as an excellent alternative to help relieve the pains of growing a small business.  In fact, most large companies are very accustomed to working with a factoring company on behalf of their vendors.

Most of the businesses that we work with are startups, companies experiencing growth, or seasonal service providers.   As we all know ‘cash is king’.  All businesses, whatever their phase, are driven to success by liquidity. Very few businesses can wait 30 to 60 days for payment of their invoices.

Factoring, along with the added cash flow it provides, can actually improve a business’s relationship with their customers.   As a by-product, factoring allows business owner to focus on their core business, increasing sales, and providing excellent customer service because they aren’t chasing down payments or constrained by tightened cash flow.  Improved liquidity provides for a better level of service and that is a win-win for everyone involved.

Business owners, whether in the start-up or growth phase, frequently find that cash flow is a challenge. It is difficult to acquire a small business loan in the current economic climate. Yes, we are seeing some indications of recovery, but the lending environment has not seen a big turnaround in terms of ease of getting working capital for new or growing businesses. There are many reasons for this, but at the top of the list is the businesses lack of a ‘bankable history’ that lenders need to assess their credit worthiness. How is a fledgling business to improve their bank-ability?

Much like the conundrum of the person new on the job market that can’t get a job because they have no work experience, how can a business in the start-up or building phase show they are a good credit risk? Cash flow is the life blood of a business, no matter what the size or phase of business. A new or growing small business must find a way to get working capital in order to keep the doors open, make payroll, purchase goods and supplies from vendors, and a multitude of other things vital to helping the business get a firm footing.

Here are a few suggestions that can help with the loan process:

• Ensure you have a strong business plan in place – this will demonstrate to a lender that you have a well thought out plan to succeed in business.
• Exhibit a strong marketing plan – a lender likes to see you have a plan of attack to carry the business forward and get the exposure you need to reach your customer base.
• Do not walk in to your lender’s office with excessive debt to start with. This is often a flag to a potential lender that you are using your current available capital poorly.
• DO YOUR HOMEWORK!! Research your business niche thoroughly. Make yourself an expert on the goods and/or services you offer. Knowledge is power and a potential lender will ask questions. Make certain you don’t have to say, “I don’t know.”

A great way to obtain working capital, to allow you time to build your bank-ability  is to work with a receivables factoring firm.  The process of factoring receivables allows a business to get working capital without debt. A business owner working with a factoring firm is using the power of their receivables as the asset it is. As a business grows, so does the revenue stream. With a strong revenue stream and time ‘on the job’ the business’ financing options will expand. But, until that happens start-up and growing businesses need to know that there are options to finding working capital to help with their cash flow issues. We stand ready to assist business owners with a cash flow pinch by helping them tap into the asset of their receivables. Let us know if we can help you build your bank-ability.

Whether you are just starting your business or working on building your business, cash flow is probably a constant on your mind. Have you heard the phrase “lumpy cash flow”? Chances are you have experienced it. This term refers to cash flow into your business that comes in spurts. Often times this is experienced when the business sends out their invoices. There are some customers that are good about paying and the business may experience a sudden in flow of receipts. Then the famine sets in… Here are some tips to improve your cash flow and help you weather lumpy cash flow.

1. 1. Put a great accounting package in place. If the business owner is managing accounts, that is payables and receivables, then they are more aware of the financial health of the business. This awareness can mean better business decisions based on a financially savvy understanding of cash flow.

1. 2. Get to know your customers. With the online research at your fingertips you can check resources like the Better Business Bureau, Google, LinkedIn, Twitter, etc. to see what is being said about those you are considering doing business with. In effect, you are extending a form of credit to those that buy goods/services from you… make certain they are credit worthy.

1. 3. Get cash up front. With the current economic climate there are more and more businesses requesting retainers or deposits on account. I have even heard of some professional service providers working from a draw down standpoint. They have a new client/customer pay $XXX and then utilize those funds to pay for services until they have reached such a point that it is necessary to ‘refill’ the account.

1. 4. Accept credit cards. This is a big help as far as cash flow. It simplifies the process for both parties. There is the notion that the credit card fees result in a loss of revenue, but that is a small price to pay when you consider that the current trend is for customers to take 60 – 90 days to pay invoices.

1. 5. Use receivables factoring. The small business owner that recognizes the value of the asset of their receivables can put that asset to work for them. Factoring receivables can get cash flowing into the business, without incurring additional debt. As with the credit card fees, some business owners consider factoring fees to be something they would rather avoid. Quite simply, keeping cash flowing is the need for all businesses to keep the doors open and business growing.

We have been discussing ways to help small to medium businesses with cash flow issues. Receivables factoring is a terrific alternative for small to medium businesses, but there is something that all businesses should address… something very simple and close to home. The pace at which receivables are coming in makes a big difference in avoiding cash flow problems.

If a business has slow payment issues with their customers then the problems are inevitable. It is not if, but rather when, the cash flow crunch will occur. In simple terms, if a business has outstanding invoices and customers takes 60 to 90 days to pay those invoices, then it is obvious where the problems will occur. At the very heart of the issue is the fact that the business carrying outstanding invoices in excess of 30 days is extending credit to their customers. I know of very few small to medium businesses that are in the position to act as financier to their customer base.

One of the best ways to ease this type of situation is to implement a gentle reminder system. By staying on top of receivables a business owner can help drive their business to success and alleviate some of their cash flow problems. I am not suggesting that the business owner manage the receivable themselves, but rather that they have a person in charge of helping drive those ‘touches’. It can be as simple as taking one day a couple of times a month (mid-month and month end are good times for this) to make a simple phone call. A great first call is to mention that you are following up with the customer to ensure that they received the invoice.  If the invoice still does not receive attention a second call asking if there is a problem with the invoice can be an appropriate follow-up.

I find that many times just starting a dialogue can help speed up the collection process. We partner with many of our factoring clients to offer these follow ups, as an extension of our factoring relationship. If you or someone that you know would benefit from our services, please give us a call.

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.

Read more: http://feedproxy.google.com/~r/SmallBusinessTrends/~3/1uW2RxpwmrU/where-small-business-owners-get-money-to-expand.html#ixzz24wrrTBYy

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.

“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.