Experts believe that managing working capital and maintaining cash flow is the key to surviving as a small business. This can be a challenge, especially in the early years. Many businesses therefore, must rely on alternative financing resources to survive.
The early years in business can be tough in in the best of times. Most small businesses however, are unable to secure a traditional bank line of credit early on for a number of reasons;
First of all, small businesses may have insufficient time in business to produce profitable financial data. Banks are reluctant to lend to businesses who lack the financial history, or the two or three year track record required by most banks.
Second, banks have become conservative in their lending practices making it even more difficult to obtain a loan. Banks are now looking for secondary sources for the re-payment such as a certificate of deposit for collateral to secure the indebtedness. Credit problems are a red flag to the bank that the business owner may not be a good risk.
Third, banks are not likely to lend to small businesses who have experienced a down-turn or who have a decline in business. Even though it’s impossible to predict the future, banks rely heavily on current performance.
So, what’s a small business to do when they are in desperate need of cash flow? Many seek the tried and true alternative means of financing called invoice factoring.
Factoring, (invoice factoring) is the process in which a business sells their invoices. Over the years, factoring has become a popular financing alternative.
Invoice Factoring is a suitable financing alternative for a number of reasons:
- Invoice factoring provides an unlimited source of working capital, limited only by the amount of business you can generate
- Advances are based on the account debtor’s creditworthiness not the businesses
- Invoice factoring can help improve a businesses’ credit rating
- Invoice factoring can help increase sales
- Invoice factoring may make purchasing new equipment possible
- Invoice factoring may allow for the addition of new staff
- Allows continued promotion of the business
Credit is not an issue for the business owner. The invoice factoring company is concerned with the credit worthiness of the customers of the business and their ability to pay. The business owner maintains control of his business and customer relationships. The money from the invoices factored can be used any way the business owner feels will best benefit the overall stability and growth of the business.
Managing cash flow should always be a business owner’s highest priority. Working capital cash flow invoice factoring asset based lending