Dec 15
Small business owners are usually confronted with a number of challenges. One of them is getting business financing. Although most entrepreneurs start their businesses with their own funds, or those of friends and family, soon they reach a point where they need additional funding to grow the business.
One solution is to look for additional financing among your friends. This is a risky strategy since there is a risk of losing the friendship if you run into business problems. Another solution is to try to go to the bank for a business loan. However, to qualify for a bank loan, your company usually needs to show three years of profitable operations and appropriate collateral assets. Generally, this puts business loans out of the reach of most small business owners.
Two alternatives that are often overlooked by businesses are factoring and purchase order financing. Both offer great flexibility and are much easier to obtain than conventional business financing.
Invoice Factoring
Do have clients that pay their invoices in 30 to 60 days? If you need funds quickly in order to meet company expenses you should consider invoice factoring. With this type of financing, a factoring company can give your business an invoice advance, secured by your soon to be paid receivables. Although terms vary, most factoring companies advance about 80% of your outstanding invoices. The remaining 20%, less the financing fee, is advanced once the invoice is actually paid. One of the advantages of an accounts receivable factoring facility is that you can use it regularly to reduce the length of time it takes you to get paid on your invoices. Also, factoring financing is tied to your sales and increases as your company grows.
Purchase Order Financing
One common challenge for resellers (and wholesalers) is winning a purchase order that exceeds their financial capabilities. Purchase order financing can be used in these situations to bridge the financing gap, enabling the company to complete the order and book the sale. Basically, purchase order funding covers your supplier expenses. The transaction is settled once your customer receives the goods and pays for them. Purchase order factoring is only available to companies that resell goods, or companies that use third party manufacturing. Unfortunately, it most po finance companies cannot service direct manufacturers.
Conclusions
Factoring and purchase order financing have gained substantial traction as a financing solution for small and medium sized companies. They both have the advantage of being easy to obtain and setup. They can be an ideal solution for companies looking for pre-delivery and post-delivery financing of their commercial sales.
By: Marco Terry
Tagged with: Accounts Receivable Factoring • Bank Loan • Business Financing • Business Loan • Business Loans • Business Problems • Company Expenses • Conventional Business • Factoring Companies • Factoring Company • Financial Capabilities • Financing Options • Invoice Factoring • Invoices • Length Of Time • Profitable Operations • Purchase Order Financing • Receivables • Risky Strategy • Small Business Owners
Nov 21
Lately, the news has not been very encouraging for business owners. The country is amidst the biggest credit crunch in its history and the federal government is making major policy changes to try and contain the problems. But credit crunch or no credit crunch, business owners still need working capital to fund the businesses.
One conventional approach is to apply for a business loan. For a long time, institutions had access to cheap money and could provide small business loans to companies without being too stringent. Unfortunately, nowadays getting a business loan is very hard. Banks require substantial collateral before providing business financing. This leaves few options for the owners of small, new or growing companies.
One alternative that has been gaining traction is factoring invoices. This is a financing option that is available to companies that sell goods to other companies and offer 30 to 60 day terms.
Most companies that engage in commercial sales face a common problem. They have to wait 30 to 60 days after invoicing to get paid. Although more established companies have enough working capital to cover this wait, growing companies usually do not. They can’t afford to wait 60 days because they need the funds to pay employees and suppliers.
Going to a client and asking for a quick payment seldom helps. Good clients, like big corporations, have set schedules for payment. Waiting to get paid is part of the cost of doing business with them.
But what would happen if your clients started paying you immediately? Would your company be in a better position to leverage opportunities? Would it still have trouble making payments to suppliers and employees? Invoice factoring can help you accomplish this.
Invoice factoring is a business financing solution that provides you with an advance for your slow paying invoices. So, instead of waiting 40 days to get paid, the factoring company gives you an immediate working capital advance using the invoices as collateral. The key to this type of financing is your invoice. Factoring is an alternative for companies that invoice businesses that have good commercial credit records.
One of the biggest advantages of accounts receivable factoring is that it’s very flexible. Most companies can get it, provided they are free from problems and have good invoices. And, as opposed to conventional financing, invoice factoring grows with your sales.
By: Marco Terry
Tagged with: Business Financing • Business Loan • Business Owners • Capital Advance • Cheap Money • Collateral • Conventional Approach • Credit Crunch • Doing Business • Established Companies • Factoring Company • Factoring Invoices • Federal Government • Financing Option • Gaining Traction • Invoice Factoring • Invoicing • Leverage Opportunities • Small Business Loans • Working Capital
Oct 15
Most lenders in the United States have a clear understanding of the business model of traditional businesses such as retail stores, manufacturers, tire stores, etc. These same lenders would be able to quickly determine if your small business qualified for a loan or line of credit.
The telecommunications industry is complex and unique, and traditional lenders usually do not have the expertise in working with independent telecoms. Financing options are much more difficult to find for small telecom businesses. It is of no interest to a traditional banker to offer a loan or line of credit to a telecommunications business with small receivables.
Another drawback is the usual timeline of telecom receivables – 45 or more days to collect after delivery of services. The billing operations of the telecom industry as a whole are a very real concern for traditional lenders, who often do not have a full understanding of the billing structure. Banks typically don’t provide credit facilities for industries or companies they don’t understand.
Instead of a traditional bank credit facility, a credit provider that specializes in telecom finance can tailor a finance program specific to your telecom operations.
Telecom factoring allows independent telcos and CLECs to sell their unpaid invoices to another company. A telecom factoring company advances a percentage of the customer’s invoice upon billing, thus benefitting the telecom in not having to wait for payment from the customer. Typically it is this payment delay that is an obstacle for small telecommunications businesses paying bills, making timely investments or expanding their business.
Receivables factoring can benefit your small business by:
1 – Providing working capital
2 – Providing a flexible funding program that increases as you increase your sales
3 – Allowing you to take advantage of vendor discounts
4 – Freeing funds for payroll and taxes
5 – Allowing you to extend credit for large orders
6 – Providing cash to buy equipment or inventory as needed
For your telecom, finance options may include: factoring, asset based solutions and investment capital.
1) Factoring is structured to allow your telecom company to obtain money more quickly against your receivables. This is a great option if you consider a specialized telecommunications financing company for your finance needs.
2) Asset based solutions use existing receivables, equipment, inventory and contracts as collateral for your funding. This can be a good option if you are an established operation with considerable assets, but for a smaller independent, this may not be an appropriate option.
3) Investment capital can be a great option if your business is open to the idea of the investor specifying funding to be spent on specific items rather than day-to-day operating expenses. This is also commonly called “venture capital”.
When it is time for you to explore financing options, a specialized, experienced industry financing company is a great help with its clear understanding of telecom operations, receivables and billing structure.
By: Andrew Stratton
Tagged with: Billing Operations • Billing Structure • Clecs • Credit Provider • Factoring Company • Finance Options • Finance Program • Financing Options • Independent Telcos • Receivables Factoring • Telecom Finance • Telecom Industry • Telecom Operations • Telecommunications Industry • Tire Stores • Traditional Businesses • Traditional Lenders • Unpaid Invoices • Vendor Discounts • Working Capital
