The following is a guest post contributed by Ella Zalkind, the founder of Action Business Solutions, Inc.
Finding and securing business funding has become increasingly difficult in this economy. Banks are hesitant to open or renew credit lines even for prosperous long-standing businesses. Even if bank financing is secured, the terms are frequently onerous and the process itself is riddled with so much red tape, document overload and bureaucracy that it can make any business owner or manager frenzied. This economic climate is forcing businesses to look for alternative means for funding as well as reexamine their credit and collection policies. In addition, cash flow management is playing an increasingly important role as businesses need to find creative ways to survive and prosper in light of these conditions. Tighter collection policies where companies are less lax about the credit terms offered to customers as well as more responsive collection practices are being forced on business owners. All this is of course distracting to an owner or manager who should be focusing on running the core business but is a necessary evil in order to survive.
One solution that companies who need financing or a boost to cash flow should consider that has many added benefits is the sale of their outstanding receivables and invoices to an accounts receivable management firm; this simple process is known as factoring and has been around for many years in select industries but is becoming more mainstream and desirable in current market conditions. In a nutshell, factoring is basically a business selling the factoring company the business' invoices for the goods or services that the business delivers for a nominal discount. The business receives a significant percentage of the invoice amount up front while the factoring company waits for the business' customers to pay. This allows the business to use the funds right away for business needs such as payroll, purchase of inventory, expansion, business expenses, etc. Essentially, this is accounts receivables management that can put an end to a company’s cash flow deficits and frees owners and managers to handle more important matters. The factoring company handles the accounts receivable management issues such as collections and often billing.
This service can be very valuable for a small and growing business in that it would have money much sooner which can be put to use in growing and building the business. Factoring is a very personalized and individualized process in that typically the factoring company endeavors to learn about the business, the company's history, customers, present day activities and concerns as well as projected growth so that the most beneficial factoring relationship can be recommended. The factoring company looks at various materials which may include budgets, projections as well as the company’s cash flow and working capital requirements, among other things. By thoroughly understanding the business, a factoring company often becomes a strategic partner of the business with a vested interest in the business' success and is ready to respond quickly to the business' needs, whether or not foreseen.
Working with a small factoring company that takes the time to understand and meet the business' needs is important in order to ensure a mutually beneficial relationship. In addition, factoring with a small company that understands the business and its needs offers many additional benefits that should not be overlooked when considering this highly desirable and effective form of financing. For example, the factoring company pre-screens the company's customers to ensure that the company works only with stellar, legitimate and paying customers; the factoring company frequently provides additional business consulting on collection practices, credit policies, cash flow management, and business strategy, to name a few services, and all without additional cost. Additional advantages of factoring include the fact that factoring is a straight sale of an asset (the receivable) so there is no debt or loan involved; the process is streamlined and much more friendly and efficient than traditional bank financing (with cash available within days rather than months as would be the case in a typical bank loan); frequently there is no long term commitment and the business can choose which invoices to place with the factor depending on the business needs at a given time; and not less important, cash concerns and cash flow management issues are alleviated.
In summary, factoring with a legitimate factor whose staff takes the time to provide individualized and personalized attention is a very effective and powerful way for a business that offers credit to its customers to obtain funding. Factoring can enable a business to succeed and thrive in this very difficult credit market where bank credit is tight or non-existent and cash flow management is a primary concern.
To learn more about factoring and to see if factoring makes sense for your business, we welcome you and your staff to contact the professionals at Action Business Solutions, Inc. at (888) 777-0689 or send us an email at firstname.lastname@example.org or visit our website at http://www.action-business-solutions.com/. We are locally based New York and New Jersey small factoring company that caters to small and growing businesses. We will be happy to chat with you to give you a better understanding of what would be involved with factoring and whether factoring makes sense for your business.