Small Business Financing Secret

All B2B companies deal with waiting 30 to 60 days to get paid on their invoices. Providing credit to buyers is ‘par for the course’ in most markets. This is fine for larger companies that can afford to wait it out, but small and mid-sized companies can be hurt by waiting so long for payment. Worse yet, smaller businesses usually have limited or no access to traditional bank loans to help make ends meet.

Why should a business with tight cash flow be extending credit? It makes no sense. The secret is: you don’t have to.

Savvy businesses in this position turn to “invoice factoring” or “accounts receivable factoring.” This is a financial tool that affectively allows a business to stop extending credit. Businesses that take advantage of this tool will receive payment upon invoicing their client from a third party factor. The factor will do the waiting and get repaid directly from your customer. This allows businesses to use the cash to meet obligations such as payroll or supplier payment, or to finance business growth with a new marketing campaign or location.

A little known fact is that accounts receivables from a strong firm are considered excellent collateral in the financial world. However most banks will not accept accounts receivable as collateral because they do not fit into their lending model but factors will be more than willing to accept them.

This is a very valuable piece of information for small to mid-sized businesses to have as factoring works perfectly for them. It provides them with the cash they need immediately whereas securing a bank loan may be a long, drawn-out process. As well, the amount of financing a business receives from a factor is flexible on a month-to-month basis thus providing your business with the perfect amount of financing.

Factoring is also ideal for start-ups. It allows start-up businesses to build a credit history which can later be used as the basis to get a traditional bank loan. Factoring also allows start-ups to match their financing with their sales rather than having a fixed debt service that they might not be able to meet on a consistent basis.

Most importantly, factoring allows businesses to leverage the credit of the companies they do business with meaning that no matter whether a business has no credit or bad credit, factoring is still an avenue to find funding.