One of the primary reasons that most businesses fail in the first 2 years is cashflow management or more precisely the lack of cashflow. Your business may have a large number of orders on the books but if your clients take 45,60,90 or even 120 days to pay it could put your entire operation in jeopardy.
In the past what a business owner would do is go to their local bank and ask for a line of credit to tide them over until their clients paid. While most banks did provide this funding all of that came to a screeching halt in 2008 when the banking sector collapsed and even Fortune 500 companies had a hard time accessing working capital to fund their operations.
If you have these accounts receivable that are mounting and no cash to work with there is a distinct possibility that your growth could stop entirely. There is hope though in the form of accounts receivables financing.
This type of financing sometimes referred to as “factoring” will let you assign the ownership to an accounts receivable factoring company in exchange for cash upfront. While each of these companies have their own respective niches they offer a similar service.
You should have no issues finding these factoring companies by going online and performing a simple search. What you need to look for is transparency in the company, this is a business relationship you are forming and need to be sure that the finance company is doing everything by the book.
Now that you have created a list of prospective firms you must look at the rates they are charging for their facilities. There will be a range that could be from 2-50% depending on what is being financed. What makes this type of loan different from the ones at your local bank is your credit does not matter at all. The accounts receivable factoring company is going to look at the credit worthiness of the organization that has bought goods or services from you. This is truly appealing since the majority of the businesses who need loans are relatively new and do not have an established track record.
Once the accounts receivable factoring company has completed their due diligence on the credit worthiness of the company that owes money on the invoice they will make an offer to provide a loan. This cash can be deposited within 24 hours if you accept the terms. As mentioned earlier you want to find a firm that is very transparent with their fee structure so you know exactly what you are getting for your money. After you accept the terms the cash is deposited into your account to do whatever you wish and the lender will collect payment discretely from your clients.
Companies need access to this working capital and without this accounts receivables financing a considerable number of businesses would fail.