Up Your Game with Small Business Invoice Factoring
Making money as a small business owner isn’t easy, and this is particularly true in today’s fast-moving environment. Online and traditional brick-and- mortar firms compete with each other for customers and they both compete with large corporations for sales. According to the federal government’s Small Business Administration, there are 28 million small businesses in the U.S. and they employ more than half of the nation’s workforce. Despite the challenges of running a small business, they have long been the backbone of our capitalist society and have become a core aspect of the modern American dream.
How Aging Account Receivables Impact Startups
Unfortunately, most small businesses will fail within the first ten years according to the SBA. There are a myriad reasons for this. From lack of sales, the administrative costs associated with servicing customers, or lower margins than forecasted to poor management, lawsuits and ever changing business models. In some cases it’s just due to slow paying clients who cause an inability to pay bills or keep up with payroll. Solvency and liquidity issues are common until that first round of investment comes through. The accounts with the longest payment times increase an important financial metric called, Aging Accounts Receivables. Reducing this metric is important to ensuring that your business will be able to continue to grow and can be done in a variety of methods.
- Instituting late payment fees or penalties
- Allowing financing terms to take payments out of slow payees hands
- Writing off bad debts and moving on from slow to pay clients
- Offer discounts for early payment
- Make payment as easy as possible with online customer portals and by accepting all forms of payment
- Talk with your clients about payments from the beginning
- Ask the clients reasons for long payments
You can also avoid this problem by working with invoice factoring companies to get paid fast on invoices.
The Biggest Clients Are Slowest to Pay: Go Figure
If you are a small business owner who sells goods or offers services to a major company or government entity, these sales likely sustain your business. Yet many larger, multi-million dollar corporations take advantage of their position by taking as long as they can to pay their bills. In other words, many of these Fortune 500 companies take their time — 30-, 45- or even 60-days — in remitting payment to you, the little-guy small business owner. Few small businesses can prosper having to wait this long to get paid.
Small business factoring companies help to eliminate this very common payment gap between small business vendors and large corporate clients.
Factoring For Small Businesses Is all About Speed
Small business factoring can do more than just help those businesses that don’t qualify for loans. All types of small businesses can get help from account receivables financing because of the expediency in which they can collect on the money that is owed to them. This is especially true for small businesses that have large corporations or a government agency as a client because these entities are often the slowest to pay their bills.
Account Receivables Financing Offers Unmatched Flexibility
Yet by partnering with a small business invoice factoring company, your firm can get access to an extendable line of credit. So if your business is experiencing rapid growth, a small business factoring company experienced with common growing pains can serve as your external financial partner offering advice, guidance and capital as your business expands. The importance of a factoring company being able to offer capital on a sliding scale that matches your business growth cannot be overstated. Quite simply, this flexibility and accessibility enables your small business to compete with the big players. Other business practices offer alternatives that you may want to weight, small business loans may help alleviate the symptoms of slow paying clients let’s look at the pro’s and con’s of going with such a solution.
Small Business Loans: The Good and the Bad
Small businesses often must obtain capital in order to prosper or get through the tough times. Yet obtaining money for your small business can be very difficult especially if you are not established or if you do not have year after year record of profitability. It is somewhat ironic that most banking institutions will not lend money to small businesses in need; banks only lend to businesses that already have capital in the form of assets, equipment, property and other resources. These assets serve as collateral for the bank when it issues small business loans. This way, if the recipient of the loan fails to pay it back, the bank can then seize the assets. Learn more about the difference between invoice factoring and a small business loan here.
Qualifying for Small Business Loan Is Difficult
Yet many small firms do not meet the lengthy bank requirements for a small business loan. New or early-stage businesses, poor performing businesses, businesses in risky industries, businesses without hard assets or properties, and more generally do not qualify for small business loans. So what’s a small business owner outside of these parameters to do? One option is to factor the receivables for completed sales that are still awaiting payment. This turns those aging accounts receivable into liquid assets that can be used to keep the business running or free up cash for periods of growth.
Qualifying for Small Business Factoring Is Straightforward
Small business factoring can be a way for companies to get the capital they need to move their businesses forward or get through a rough patch. There are even companies that specialize in invoice factoring for specific small business needs such as the national payroll factoring companies listed here. Account receivable financing allows your business to collect on its invoices in 2-5 days instead of 30 days. By getting paid faster, your business will be able to:
- Improve its cash flow in order to become stronger and more capable.
- Expand its operations and move into a new market or territory
- Hire new staff for busy season or to keep up with current growth
- Pay off existing bills, including overhead, payroll, raw materials, equipment, gear, and more
- Launch a marketing or advertising campaign to better promote your product or service
- Get a head start in planning and preparation for the next quarter
- Cover costs of an unforeseen bill or expense
Compete Against the Big Guys – and Win – with Small Business Factoring
More than getting paid faster from your big corporate clients, factoring receivables provides small businesses with an edge when competing against larger companies for customers. Large firms often have the bankroll to match in the form of assets, a six-figure line of credit or even cash reserves. Moreover, these big players are more able to get loans if they need to and can hire finance experts to maximize every dollar. Most small businesses have neither of these things; if you have a finance whiz on your team, this is an exception not a rule.
So whether your 50- to 300-person business needs capital in order to grow, cover day to day expenses, or get through a flat period, small business factoring can help. It can help you get paid faster so you can improve your business cash flow and better prepare for the next quarter.