Finding the right solution to finance a business has always been a challenge for owners. Most are only aware of conventional products, such as business loans or lines of credit, that are offered by financial institutions.  While this products can work very well, they are usually offered by financial institutions that have conservative lending standards which can make the inaccessible.

Not too long ago, getting a business loan was relatively easy, especially if the business owner had a home that could be used as collateral. Nowadays, business loans are much harder to get. Financial institutions will ask for two to three years worth of financial statements and review them very carefully. Likewise, they will only get involved in lending transactions if the business has substantial collateral and if the owner has a significant net worth.  These criteria all but rule out small business. Because of this, alternative business financing solutions have been on the rise.

Most small companies that look for business financing do so because they have cash flow problems. Usually these happen because the company has to give 30 to 60 day payment terms to their customers but has expenses that need to be paid quickly. In effect, they can’t afford to wait up to 60 days to get paid. One obvious way to fix this problem is to use a line of credit to cover expenses while waiting to get paid. But if a line of credit is not an option, invoice factoring may be the right alternative solution.

Factoring is an form of business financing that accelerates your cash flow due from slow paying customers. It works by using a financial intermediary, called a factoring company, that advances funds  against your slow paying invoices. The factoring company holds the invoices as collateral, while your company gets a cash infusion that can be used to meet your current business expenses. The transaction is settled once your customers pay the invoices , though many companies establish revolving factoring lines that can be used on a regular basis.

Most factoring transactions are structured so that invoices are funded in two stages. The initial advance is provided  as soon as the work is completed and your customer is invoiced. Most initial advances are for 80% of the invoice, but this can vary based on certain conditions. The second advance is provided once the invoice is paid in full and covers the remaining 20%, less the factoring fee.

Factoring fees usually vary based on a few parameters such as the creditworthiness of your customers, the quality of your invoices, how long it takes for your customers to pay and the size of the factoring line.   Generally the factoring fee will be based on a percentage of the invoice.

One of the main advantages of invoice factoring is that it’s easier to obtain than most conventional financing. The most important criteria to qualify is the credit strength of the companies that will pay your invoices – this represents the collateral for the factoring company. Aside from that, your invoices need to be free and clear of any legal or tax encumbrances.  Lawsuits, judgments and tax problems may hinder your company’s ability to  get factoring financing. Most factoring companies will check this information during their due diligence process.

The biggest benefit from factoring is its flexibility. Most factoring lines are not based on fixed amount, but rather are tied to your sales. This means that the invoice factoring line can grow with your business, provided that your sales to are to credit worthy companies. This makes factoring an ideal solution for small and medium sized companies that have good potential that is being hindered by cash flow problems.

The current post recession economy has left a number of companies in deep financial trouble. For some, revenues dropped below expenses, forcing cutbacks. For others, cash flow suffered because customers started paying slowly, starting a chain reaction of missed supplier payments, missed payroll, delayed orders among other problems. If there is one thing that the current economy has provided for small business owners – it’s plenty of opportunities to get into financial trouble.

Many small companies that have run into financial problems could be helped with the right type of business financing. The problem is that companies that have financial problems usually don’t have access to business financing. Financial institutions are very conservative and will only lend money to companies that have solid collateral, impeccable financial statements and a solid track record of profitability. This will rule out most small businesses and almost any company that is in financial trouble. It’s the common catch 22 – where businesses that could benefit from funding don’t have a way to access it.

However, there is a business financing solution that has been gaining popularity with troubled companies – it’s called invoice factoring. Invoice factoring solves one common issue for small companies – cash flow problems created by slow paying customers. It solves this problem by working with a financial intermediary – called a factoring company – that advances you a payment for your invoices and then waits to get paid by your customer. This provides your company with the liquidity it needs to be able to meet its obligations on time without worrying about slow payments.

Factoring financing does have one important limitation though – it can only help companies that have cash flow problems that are created by slow paying customers. It cannot be of much help to companies that have other financial problems – such as low sales.

One of the advantages of factoring financing is that it is easier to qualify for than most conventional financing solutions. Generally, the most important requirement is that your customers need to have good commercial credit. This is important because your invoices are the collateral for the transaciton. Additionally, your company will need to be free of legal and tax problems.

Another important advantage of invoice factoring is that it usually does not have a fixed limit – like a loan or credit line. The factoring line is usually dynamically tied to your revenues, and grows as your business grows – provided you are working with solid customers.

One of the consequences of the recent recession is that companies have become more guarded and conservative with their cash flow. For example, many large companies are conserving cash by paying their invoices more slowly. In turn, this has affected smaller companies who depend on steady predictable cash flow to be able to meet their obligations. Likewise, smaller companies are also doing the same thing and trying to pay their invoices slowly as well. Ultimately, everyone’s cash flow is being affected.

The problem with this is that many small companies live invoice-to-invoice (not unlike paycheck-to-paycheck) and a delay in invoice payments can easily send their finances into a tail spin. And since few small companies have any meaningful cash reserves, a delay may impact their ability to pay suppliers – and more importantly – their ability to meet payroll. Missing payroll can have substantial negative consequences that could ultimately lead to the closure of the business.

Your first line of defense to prevent a cash flow shortage is to build a cash reserve. This is easier said than done since most small businesses don’t have the wherewithal to build a cash reserves. But if you can build a cash reserve, your company will be in a better position to weather the inevitable storms that will hit your cash flow. If building a cash reserve is not an option, then you should consider using a business financing solution that can allow you to cover payroll and other expenses if things get tight.

Invoice factoring is a business financing solution that can be used to correct cash flow issues relatively quickly and without the hassles associated with conventional financing. It works by correcting the problem at the source. It provides you a cash advance for your slow paying invoices, providing the liquidity you need to meet payroll and other important expenses. With an invoice factoring solution you can eliminate the uncertainty of client payments, enabling you to obtain a more predictable cash flow.

One of the advantages of factoring is that the most important thing you need to qualify for this type of financing is solid commercial customers. It’s ok if your customers pay slowly – provided that they pay reliably. Aside from this, your company needs to be free of legal and tax issues. And factoring can be deployed fairly quickly – usually in a week or two.

Another advantage of factoring is that it’s dynamically tied into your sales. This means that it can be increased easily as your sales increase, provided that you are invoicing credit worthy customers. This makes invoice factoring the perfect solution for small companies with good prospects that are hindered by cash flow problems.

Slow paying customers can drain your company’s resources and create a serious drag on your company’s cash flow. In an ideal world, the best way to avoid slow paying customers is not to sign them on in the first place. But in reality things are never that simple, and especially nowadays, even large corporations also pay their invoices slowly. It’s just how things work in the current economy so it helps to have a plan to del with slow paying clients.

With this in mind – what is the best way to deal with slow paying customers? In reality, there is no best way. Rather, there are a number of steps you can take to make sure you get good customers with solid payment records. If you follow these steps diligently you will minimize the chances that you will have problems from slow paying customers.

There are two things that you can before singing on a customer that will reduce the likelihood of having payment problems. First, when you work with clients you should always have an attorney written contract that outlines all the critical points of the sale, including the payment terms and the product/service acceptance criteria. This is critical because it puts all expectations in writing and gives both parties an opportunity to measure performance. Second, you should only extend payment terms to commercial customers that have a solid payment track record. To do this you will need to check your client’s commercial credit or references. Dun & Bradstreet and Experian both produce well respected business credit reports that are available online.

The next step is to manage your receivables properly. There should be a dedicated person that calls the customer shortly after the sale to make sure that they are happy with the product or service. This will help you identify potential disputes so you can resolve them quickly. And If the invoice remains unpaid after the due date, be sure to call the customer promptly to check on the status. However, be mindful of how often you call the customer since calling too often can cause problems. Lastly, you should always be respectful, polite and professional with all customer interactions.

However, there are times when you follow all the right steps and customers still pay slowly. This can create a cash flow problem for your company. In that case, you should consider using invoice factoring to accelerate the payment of your invoices. Factoring is a form of business financing in which a funding company, called a factoring company, advances funds against your slow paying invoices from credit worthy commercial customers. This provides you the needed funds to operate your business and relieves the pressures created by slow paying customers.

One of the advantages of factoring is that it’s much easier – and faster – to obtain than conventional business financing. Since factoring companies use your invoices as collateral – it’s critical that you work with credit worthy customers. Aside from this, your company should be free of legal and tax problems. Most factoring lines can be implemented in a couple weeks – which is comparatively fast. these Teatures make invoice factoring an ideal solution for growing firms the have good, but slow paying, customers.

Most small and medium sized businesses that sell to commercial clients develop cash flow problems sooner or later. Most of these problems stem from the fact that companies have to deliver their products/services immediately but have to wait up to 60 days for customers to pay their invoices. On the other hand, the company still needs to pay many expenses quickly. Payroll must be met. Suppliers and rent have to be paid on time. This situation creates a timing gap between revenues and expenses, which can create serious cash flow problems. Unfortunately, business owners are usually caught in a catch 22. Large credit worthy customers will take their business elsewhere if you don’t give them up to 60 days to pay.

There are three ways to reduce the timing gap and improve the cash flow of your business. One alternative is to accelerate your revenue by asking customers to pay sooner. Many companies are willing to offer a 2% discount on their invoices to customers that pay in 10 days or less. Another strategy is to delay your expenses. For example, ask your suppliers to give you 30 to 60 day payment terms. However, to get 30 to 60 days payment terms, your company needs to have a good commercial credit. Using these two strategies will allow you to better match your revenues and expenses. The problem is that ultimately, you are leaving the fate of your company at the mercy of its clients and vendors.

There is a third alternative to solve this problem. You can accelerate your revenues using an invoice factoring facility. Factoring allows you to finance your invoices from large credit worthy customers – basically leveraging their credit strength to get financing for your own company.

Factoring works by using a financial intermediary, called a factoring company, that buys your invoices and provides an upfront payment. Your company gets immediate funding that can be used to cover current expenses or invest in growth opportunities . Once the factoring company buys the invoice from your company, they hold it until your customer pays. Once your customer pays the invoice, the transaction is settled. The factoring company charges a small fee for this service.

Obtaining factoring financing is relatively easy – your company needs to be free of problems and it needs to work with credit worthy customers. And, the financing line is directly tied to your sales, enabling it to grow dynamically as your sales grow.

Factoring is an ideal business financing solution for companies whose biggest challenge is that they can’t afford to wait 60 days to get paid by customers.

Most businesses are still feeling the effects of the past recession in one way or another. The most affected businesses are finding themselves with more liabilities that assets, leaving them with a negative equity situation. Unless handled correctly, this situation can easily spiral into a vicious cycle that ends with the company declaring bankruptcy or shutting down.

Most companies with negative equity also have cash flow problems. Most commonly, these appear when the customers start demanding longer payment terms. Instead of paying invoices in net 30 days, they start paying them in net 60 days. This creates a liquidity problem that forces the company to start juggling vendor payments and other expenses while waiting to be paid. It also limits the ability of the company to take new orders. Before long, the company goes into a tail spin.

Many times, this cash flow problem can be corrected with business financing, enabling management to turn the company around. And here lies the problem. Getting business funding while having negative equity is nearly impossible. You won’t be able to find a line of credit or business loan. And if you already have financing, it’s unlikely that your institution will increase the line. After all, if you have negative equity, your company has no collateral. And institutions don’t lend without collateral.

There is an alternative however. If you biggest problem is that you have cash flow problems due to slow paying clients, factoring financing may be the right solution to help you turn your company around. Invoice factoring accelerates your client payments by using a financial intermediary between your company and your customer. The factoring company, as the intermediary is called, advances you funds for your invoices as hold them until your customer pays. This increases your liquidity, improving your ability to pay vendors and take new orders.

One of the advantages of invoice factoring is that it’s easier to obtain than conventional financing. The collateral that factoring companies are most interested on are your invoices from credit worthy customers. Most factoring companies are comfortable holding only that as collateral. Aside from that, your company will need to show how it plans to turn around its current situation.

If you currently have another business financing solution in place (e.g a business loan), you will probably need your lenders cooperation to add and integrate factoring into your company. Turning around a company that has negative equity is very challenging. You should consider hiring a qualified financial professional to help you with this situation.

Invoice factoring is a form of business financing that has been gaining a lot of notoriety in recent years. It is a specialized form of business financing that is designed to help companies that offer net 30 to net 60 terms to their customers, but can’t afford to wait that long to get paid. Factoring invoices solves this problem by advancing funds to companies based on their slow paying invoices. This improves their cash flow and helps them stabilize operations, allowing them to grow.

Most factoring transactions are structured as the purchase of an invoice by a factoring company. The purchase is done in two installments. The first installment is called the advance, and is provided as soon as you sell the invoice to the factoring company. The percentage that is advanced is based on your industry, your track record, the payment record of your customer and market risk conditions. Most advances average 80% of the invoice. However, transportation companies using freight factoring can get advances as high as 90%. Likewise, staffing companies can get factoring advances that go as high as 90%.

The second installment, called the factoring rebate, is paid to you once the customer pays the invoice in full. The rebate will include the remaining amount that was not advanced, less any fees. For example, if the advance was 80%, the rebate will be 20%, less any factoring fees.

When a factoring company purchases an invoice from your company, it can do so with recourse or without recourse. In a recourse factoring transaction , the factoring company has the right to sell back to you any invoices that have not been paid within 90 days, regardless of the reason for nonpayment. A non recourse transaction is a little bit different. The factoring company will absorb the loss of a non paid invoice if (and only if) your customer does not pay the invoice due to a declared insolvency (such as a bankruptcy) during the purchase period. Each factoring company engineers transactions in their own way, so you should familiarize yourself with the terms of your contract.

One very important aspect of a factoring transaction is the notice of assignment. Before you start factoring invoices for a particular customer, the factoring company will need to setup the customer. This is usually a fairly quick process where the factoring company checks your customers commercial credit, and then notifies them that their invoices will be factored. The notification letter, commonly referred to as a notice of assignment, informs your customer that you are working with a factoring company, who is helping you with your receivables. It also contains a new payment address. Many times the payment can continue to be made in your company’s name, provided it goes to the new address. The notice of assignment is fairly standard in the factoring industry but each factoring company has its own version of it.

Although factoring transactions appear to have many moving parts, they are fairly simple to implement and can be easily integrated into most companies. One of its most important benefits is that factoring is flexible. The line is dynamic and tied directly to your sales. You can easily grow your financing – as necessary – provided you sell good products or services to a diverse number of credit worthy customers.

The U.S. government buys billions of dollars worth of products and services from commercial companies every year. This has held true even during the credit crunch and recession of the past few years, making government sales one of the more attractive opportunities during the past few years. In response to this trend, a number of companies have started or grown their government sales departments.

Generally, government suppliers are either selling products or services. The financial challenges that these two types of suppliers face are different. Product suppliers need capital to purchase goods, that can then be resold to the government to fulfill their purchase order. Service suppliers, on the other hand, need to cope with the fact that government invoices can take up to 45 days to pay after delivery of service, which affects cash flow.

Unless the company is well capitalized, government suppliers will need business financing to be able to meet their obligations and grow their companies. One alternative is to use a business loan to improve cash flow. The challenge is that business loans are difficult to obtain in the current financing environment. Most financial institutions will require solid financial statements, showing at least a couple years of profitable operations. Additionally, the company will need to have substantial collateral. Few companies can meet this criteria.

There are two alternative forms of financing government transactions that have been gaining traction in the past couple years. They are purchase order financing and factoring financing. These two financial tools are available to most government suppliers.

Purchase order funding solves a common problem for government suppliers that sell products – how to pay your suppliers so that you can fulfill your government purchase order. It solves this problem by paying your suppliers on your behalf, and then settling the transaction with your company once the government pays for the goods.

Factoring, on the other hand, solves a different problem. Most government service providers need to wait up to 45 days to get paid for their services. But few can afford to wait that long because they have obligations to meet, such as payroll and rent. Invoice factoring provides an advance against the government invoice, providing the liquidity your company needs to meet its obligations. This transaction is also settled once the government pays the invoice.

Both of these alternatives are easier to obtain than conventional financing and have the flexibility to grow with your business. To qualify, your company must have viable government purchase orders, decent margins and be free to liens and judgments.

One of the more troubling by-products of the recent credit crunch is that many companies implemented immediate measures to conserve cash. One of those measures was increasing how long they take to pay invoices. In the past, most commercial transactions were paid on net 30 terms. That meant that the customer had 30 days to pay their invoice. Now, most customers are paying their invoices in 45 to 60 days. Some are taking as long as 90 days to pay. This has put small and medium sized companies at a disadvantage because few can afford to wait that long to get paid and may need to be paid sooner to be able to meet obligations.

One way to protect your company against this situation is to start building a cash cushion that can be used to cover operational expenses while waiting to be paid. Another alternative is to offer incentives, such as discounts, to customers that agree to pay quickly. Offering a 2% discount for a payment in 10 days is a common practice that can be used to enhance cash flow.

Another alternative is to use a business financing tool called factoring in order to quickly monetize your slow paying invoices. Invoice factoring involves using a financial intermediary between your company and your customer. You sell your invoice to the factoring company, who advances you funds. The factoring company then holds the invoice until maturity and settles the transaction when the customer pays in full.

Most factoring financing transactions are structured as the purchase of an invoice, which is an asset, payable in two installments. The first installment is called the advance and is about 80% of the gross value of the invoice. The second installment, called the rebate, covers the remaining 20% (less a service fee) and is paid once your customer pays the invoice in full.

An important advantage of factoring financing is that is more accessible than other forms of financing. Most factoring companies don’t require that clients have substantial assets. The most important requirement is that the client must do business with credit worthy customers. This feature makes factoring an easily accessible solution for small and midsized companies.

Another important feature of factoring is that it can be deployed quickly. While most conventional business financing programs take a couple months to set up, most factoring plans can be deployed in a week or two.

One of the biggest advantages of factoring is that it can monetize slow paying invoices. This makes it an ideal solution for companies that can’t afford to wait up to 60 days to get paid by customers.

One of the most challenging situations a business owner can run into is having a lot of invoices that will be paid in 60 days, a lot of expenses that need to be paid now, and not enough cash in the bank to pay the bills. This is a very common situation for small and midsized businesses that have to give their clients 30 to pay their invoices. Sooner or later, they run into cash flow problems – especially if the company is growing.

In this case, the biggest risk is not having enough funds in the bank to cover payroll. A business owner can delay paying their vendors, but not paying employees is usually an unacceptable option. Usually, missing payroll can signal the beginning of the end since few companies can recover from that.

One solution is to accelerate customer payments. A way accomplish this is to offer customers a discount if they pay quickly. A common rule is to offer a 2% discount if the customer pays in 10 days or less. This strategy is well know and usually works and will help you build a cash reserve. The problem is that this it will leave you at the mercy of your customers who may chose to opt out of the discount at any time.

Many business owners require both quick payments and predictable cash flow. In those cases, the best solution can be to use business financing to cover the cash flow gap. A solution that has been gaining traction in the past years is invoice factoring. Factoring can help cash flow by reducing the length of time it takes you to get paid for your invoice from 30 days to just a couple of days. It works by introducing an intermediary called a factoring company who advances your company funds against your invoices. The factoring company holds the invoice and then waits until your customer pays ay which time the transaction is settled.

Most factoring transactions as structured as two payments. The first payment, usually 80% of the gross invoice value, is given as soon as the invoice is sent to the factoring company. The remaining 20%, less a service fee, is paid as a second installment once the customer pays the invoice. The service fee will vary and be based on the factoring volume and credit quality of your invoices.

One of the advantages of factoring is that it’s easier to obtain that other forms of funding. Most factoring companies look for clients that have customers with good commercial credit ratings. A small company whose biggest asset is a roaster of good customers would be a good candidate for this type of financing.

Factoring is a great solution for companies whose biggest problem is that they can’t afford to wait 30 to 60 days to get paid by their clients.

Most companies experience cash shortages at one time or another. This article will explain how to address a common problem that causes shortages and will also suggest some strategies to del with them. However, this article should not replace the advice of a qualified professional. If your company has serious cash flow problems, you should consider speaking to a financial specialist immediately because waiting seldom helps.

Let’s look at the most common cash flow problem. In corporate sales it’s common to give customers 30 days to pay. Thanks to the economy, most customers have taken longer to pay their invoices. Some can take as long as 60 days to pay. This leaves companies waiting up to two months for payment. In the meantime, the company needs to cover it’s expenses regularly. You need to pay rent, vendors and employees. So these payments come out of your reserves, until the invoices pay. The problems start when your reserves dwindle due to growth or slow paying customers.

There are two ways to protect your reserves. One way is to delay expenses so that they come close to matching your invoice payment cycle. The other one is to accelerate invoice payments. Ideally, you want to take both approaches to achieve the most optimal solution.

The most common way to delay expenses is to speak to your own vendors and seek 30 to 60 day terms yourself. If you have been a good client to them, many will be happy to oblige in order to keep your business. However, if you renegotiate payment terms, be sure that you can meet the payments, otherwise you risk losing your vendors. One thing you should avoid at all costs is missing payroll or not paying taxes. If you are at risk of missing payroll, seek the help of an advisor as it’s a sure sign your company is in serious trouble.

There are a couple ways you can accelerate your invoice payment cycle. One is to speak to customers and offer them a discount if they pay quickly. It’s a common industry practice to offer a 2% discount to customers that pay in 10 days or less. If that approach is not sufficient, you should consider factoring your invoices. Invoice factoring accelerates your revenues by using a financial intermediary who advances you funds against your slow paying invoices. The factoring company holds the invoice until maturity and settles the transaction with your company once the customer pays the invoice in full. The factoring fee is based on the factored volume, the credit quality of the invoices and other variables.

One advantage of factoring is that it’s easier to obtain than conventional business financing. The impost important requirement to qualify is to have customers with good commercial credit ratings. It also works well for company whose assets are limited to good quality invoices from credit worthy customers.

Most cash flow shortages require a comprehensive approach of managing both expenses and income in only to ensure the company has sufficient liquidity to cover obligations. Factoring is a tool that can be used to help in this effort.

Although the recession has been technically over for a while, finding business financing remains almost as challenging as it was during the worst part of it. This is due to a combination of lending institutions being in bad financial shape and lenders being more conservative in their lending. In the end, they only provide business loans to companies that are in pristine shape. That means that companies need to have two to three years of positive financial statements, have strong cash flows, strong assets and a seasoned management team. However, few companies have survived the recession unscathed and most can’t meet these requirements. If a company is viable but has a less than perfect past – what are their options?

Most companies that look for financing tend to have a similar problem – poor cash flow. This problem starts (or worsens) when customers start paying their invoices late or asking for longer payment terms. Invoices that used to be paid in 15 to 20 days, now get paid in 30 to 40 days. Some customers may take up to 60 days to pay an invoice. In the meantime, the company still needs to cover all their current expenses.

This can put a company in a precarious position, especially if it does not have strong cash reserves. They risk missing a critical supplier payment or worse, missing payroll. One way to fix this problem without using a business loan is to use invoice factoring.

Invoice factoring provides an advance for slow paying invoices. This provides the company with the necessary funds to meet supplier payments and other expenses. More important, it stabilizes cash flow by providing predictable invoice payments, allowing the company owner to focus on growing the business.

When cash flow is tight, owners fret over taking on new business and adding customers because they are unsure if they will be able to cover expenses until the client pays. Invoice factoring solves this problem – allowing the business to take on new clients and grow.

Integrating factoring to a company is fairly easy. Usually, the factoring company will give you an advance of up to 85% on your invoice as soon as the work is completed. The remaining funds, less the fee, are rebated when your customer actually pays.

Qualifying for factoring is much easier than qualifying for other types of financing. The most important requirement to qualify is to do business with customers that have good commercial credit. Aside from that, your company needs to be free of liens, judgments and tax problems.

Although the economy still has challenges, most experts agree that conditions are improving. Unfortunately, this does not mean that getting conventional business financing will be easier. The sad truth is that many lending institutions are still licking their wounds from the excesses of the subprime credit bubble and few are willing to lend to companies – unless they have substantial collateral. Even institutions that are providing business loans to small businesses are focusing only on the bigger small businesses. So, where does this leave small and new businesses? Not in a very good place.

Small companies have had to improvise to survive the crisis. Not only bootstrapping their operations, but also looking for less conventional sources of funding. One of these less conventional sources of financing is invoice factoring. Although factoring has been available for decades, it’s gained mainstream notoriety during the recession because it was one of the only sources of funding available to small and new companies.

One of the biggest challenges that small businesses are dealing with are slow paying commercial customers. In the past, commercial clients paid their invoices in 15 to 30 days. Nowadays it tales closer to 45 or even 60 days to get paid. Few small businesses, let alone startups, have the capital reserves to wait that long to be paid. Invoice factoring helps these companies by providing them with a funding advance against their invoices/receivables.

Factoring reduces the time to get paid dramatically, freeing up your cash flow and allowing you to meet existing business demand – or deploy it to pursue new sales opportunities. Most small companies use factoring as a stepping stone to grow the business and eventually qualify for more conventional financing.

As opposed to most conventional financing alternatives, qualifying for accounts receivable factoring is relatively easy. The most important requirement is that you do business with reliable credit worthy companies. Aside from that, your company needs to be free of legal problems.

Factoring is rapidly becoming a common way to finance a business, especially now that business loans are difficult to get. It is a good business financing tool that can work very well for growing companies – or companies that have cash flow problems.

Invoice factoring is a specialized form of financing that is designed to help companies that have one very specific problem – they sell to their clients on net 30 to net 60 terms but can’t afford to wait to get paid. Businesses find themselves with this challenge due to a number of reasons but the two most common reasons are poor capitalization or fast growth. As a matter of fact, fast growth is the main reason companies chose to do business with a factoring company. For example, a small company gets a very large order from a client. They can deliver it but can’t afford to wait 30 days to get paid because they have their own expenses to cover. One option is to turn the sale away. Another one is to factor it.

So how does factoring help a company that can’t wait 30 to 60 days to get paid? Simple – it provides a cash advance against those invoices. The advance enables the client to cover business expenses without worrying about the timing of client payments. The transaction is settled once the end customer pays the invoice in full.

Most factoring transactions are structured as an invoice purchase rather than a business loan. The factoring company buys the invoice from the client and pays for it in two installments. The first installment is called the advance and can be anywhere from 70% to 90% of the invoice value. The remaining part (10% to 30% of the invoice) is not advanced and used as a reserve to cover factoring fees and invoice discrepancies. The second installment, called the rebate, is provided once the invoice is paid in full. The amount rebated is usually the reserve, less any fees and payment discrepancies.

One of the biggest advantages of factoring is that is available to companies that have no hard assets (such as real estate) and little or no credit history. This makes it an ideal funding solution for small and medium sized companies that can’t afford to wait up to 45 days to get paid by their clients.

Slow paying clients can be a major problem for companies; consuming time, resources and jeopardizing the financial stability of many small and medium sized businesses. Like it or not, the current recession and slow recovery have forced many businesses to live from invoice to invoice. A late payment can have a negative effect, forcing the company to delay payroll or critical supplier payments.

The best way to handle a slow paying client is to prevent the situation from happening in the first place. It’s a lot more effective to spend your resources ensuring clients pay on time, rather than chasing slow payers. This can be accomplished fairly easily.

There are two things you need to do to make sure commercial clients pay one time. First, you need to check their commercial credit rating / payment history – and only give credit terms to those that have an acceptable credit report. This can be done by using one of the many business credit bureaus that exist. Most reports are relatively inexpensive. Second, you need to have a good invoicing and follow up procedure in place. This will take some work but will have a substantial payoff. Be sure to send invoices to clients in a timely fashion and be sure to verify that they received the invoice.

If your clients won’t pay their invoices sooner, your second option is to finance your invoices using invoice factoring. The factoring financing advance can be used to cover your business expenses, while you wait for your clients to pay. The transaction with the factoring company is settled once your client pays the invoice in full.

Factoring has two advantages. First, it can improve your finances, especially when combined with a good invoice management program. Second, and perhaps more importantly, it gives you control of your cash flow, eliminating the guesswork of when clients will pay. This enables business owners to spend more time running their business and less time chasing invoices.

Qualifying for factoring is relatively easy. You need to have clients with a good commercial credit rating and good invoicing practices. Additionally, your company has to be free of encumbrances.

Most businesses will need some form of business financing to succeed. One of the most common forms of business financing is a line of credit. As opposed to a business loan, a revolving line of credit can be drawn upon when needed. For example, companies like them because they can be used to manage the ups and downs of cash flow. Lines of credit have the added benefit of being (on average) cheaper than most other forms of business financing.

Lines of credit do have drawbacks though. One of the more important drawbacks is that they are subject to very strict underwriting guidelines. This makes them accessible only to companies that have plenty of assets, solid profitability and a good management team. Few small companies can qualify for them.

Their other drawback is that they have fixed maximums. That means that if you reach the line’s ceiling and need additional funds, you are usually out of luck. You will need to submit your account for re-consideration to your lending institution and request and increase. This may happen – or not.

There is an alternative to conventional lines of credit that has been gaining traction in the past few years. It’s called factoring. Invoice factoring is a financing tool that is directly ties to your sales. It allows you to get an advance on your net 30/60 invoices, eliminating the wait and providing immediate liquidity to handle company expenses and new projects. Since it’s dynamically linked to your sales it grows in tandem with your company. This makes it an ideal source of financing for small companies that are in a growth stage.

Factoring provides an easy proposition – you invoice your customer using traditional net 30 terms, but you get an 80% advance from the factoring company. This provides predictable cash flow, which enables you to run your business more effectively. You get the remaining 20%, less a financing fee, once your client pays the invoice in full.

Although factoring is not suited for every business, it’s ideal for companies that have heavy payroll and a lot of activity. Some examples include transportation companies, staffing agencies, security companies and construction subcontractors.

Food distribution companies tend to be cash flow intensive, They are constantly receiving products from suppliers, delivering products to clients, paying vendors and collection on invoices. This activity doesn’t always flow very smoothly – at least as cash flow is concerned. For example, it’s very common for small and midsized companies to have to pay their vendors in 10 days or less. At the same time, when they make a sale, large corporate clients insist on paying their invoices in net 30 to net 60 days.

This creates a discrepancy between the outflows of money (vendor payments) and inflows of money (invoice collections). The cash flow gap can cause serious problems unless managed correctly. At first most business owners try to juggle vendor payments – perhaps delaying some for a few days. If your business if growing, this strategy will not work for the long term.

A better alternative for some is to get business financing and use it to cover operations while waiting to get paid. One challenge with this strategy is that business loans are hard to obtain. Applicants need to have very solid financial statements, sufficient assets and an experienced team in place. These requirements put a business loan out of the reach of most small and medium sized food distributors.

There is an alternative way to solve this cash flow problem – and it’s easier to get than a business loan. It’s called invoice factoring. Factoring provides an advance on your net 30 invoices, providing the funds you need to operate the company while waiting for your clients to pay. The transaction is facilitated by an intermediary called a factoring company and the transaction is settled once your client pays the invoice in full.

To qualify for factoring, you must have a business that is free of judgments, liens and encumbrances and you must work with credit worthy clients.

Factoring provides predictable cash flow and frees the owners to spend their time where it gives the best return – growing their business.

The number of business financing alternatives that are available to small and medium sized companies has dropped dramatically as a result of the financial crisis. Until recently, most owners could get a business loan by posting their house as collateral. Now that real estate prices have dropped substantially, banks find themselves saddled with worthless collateral and are being extremely careful with their loan portfolios. Only companies that can show profitable operations for a number of years, strong financial statements, demonstrated management leadership have a reasonable chance at getting business loans. Everyone else will need to find an alternative.

One alternative is a type of self liquidating transaction called invoice factoring. A self liquidating transaction is one that carries it’s mechanism for its own repayment. This feature makes them a very attractive source of financing to some companies.

Factoring is commonly used by companies that give 30 to 60 days invoice terms to their clients. Although large clients demand these payment terms, many small to medium sized companies can’t afford them. They need to get paid sooner so that they can meet their operating expenses. This is where invoice factoring comes in.

In a conventional factoring transaction, the client makes the sale, sends the invoice to the client and the finances it using a factoring company. The factoring company funds the invoice in two payments. The first payment covers about 80% of the invoice and is given soon after invoicing. The second payment of 20 % (less fees) is sent once the invoice is paid in full. The second payment closes – or liquidates – the transaction.

One immediate advantage of invoice factoring is that it allows clients the ability to offer payment terms to their clients with confidence – knowing that they can get money sooner if their business requires it. Additionally, factoring transactions are based on the credit strength of the invoice backing them. This allows small companies, who sell to large credit worthy businesses, to leverage their roster of clients to get financing.

Factoring is ideal for small and midsized companies whose biggest problem is that they can’t afford to wait 30 to 60 days to get paid.

After long negotiations, your star salesperson makes a big sale to a new client. This is a big enough sales that it could easily make your year. There is only one minor catch – your client is asking for net 30 terms. They will pay your invoice 30 days after receipt. In the meantime, you need to cover all costs of the sale (products and services) plus all your business costs. Should you make the sale?

It’s a tough question to answer. If you are confident that your client can pay the invoice, then making the sale is probably a good idea. If you are not confident they will pay then you should be very careful and remember that it’s only a true sale if the client pays.

But how can you determine if your new client will pay? The best way to determine if your new commercial client is likely to pay their invoice is to check their commercial credit. A good commercial credit report will provide your clients track record of paying clients and will suggest a credit limit. Although credit reports are not perfect, they are a very good tool to have if you need to make a quick decision. If you need to make a credit decision for a very large sale, you should consider buying reports from several providers and doing more thorough credit evaluations. Two well known providers of credit reports are Dun and Bradstreet and Experian Business Credit.

There is another problem with net 30 sales. What if you want to make the sale but cannot afford to wait 30 days to get paid? If you have that problem you should consider factoring the invoice. Invoice factoring is a form of financing which advances funds against your invoices from credit worthy commercial clients. The quick payment by the factoring company also enables you to offer net 30 day terms with confidence, knowing that you can finance the invoice if you need money sooner.

When you factor an invoice you get two payments. The first payment is given upfront, as soon as your invoice the client. It’s usually for 80% of the invoice. The second payment , the remaining 20% (less fees) is given once your client actually pays the invoice.

One of the advantages of invoice factoring is that your financing line is dynamically tied to your company’s sales. This enables to grow your business knowing that you can always tap into the factoring line if you need to fund your invoices.

Most midsized companies have always been in a peculiar position when they seek financing. Often times they are too big to qualify for most small business financing packages, and too small to qualify with large financial institutions. Although many providers focus on “middle market” companies, finding the right financing can be a complex endeavor. This has become even more challenging in the current economic environment which strongly discourages institutions form risk taking.

Most midsized companies either need capital for new projects or need funding to smooth out cash flow. Their main focus tends to be on using lines of credit as a way to handle their cash flow problems. Unfortunately, the underwriting standards for a line of credit are similar to those of a conventional business loan. Most institutions require that the company have solid financial statements, good growth prospects and a well seasoned management team. And even if you meet these requirements, success is not guaranteed.

If your company has cash flow problems, there is an alternative source of funding your should consider. It’s called factoring. It’s an ideal solution if your business is affected by customers that pay their invoices in 30 to 90 day but you can’t afford to wait. This problem is very common and it forces companies to dip into reserves (if you have them) while they way to get paid.

Invoice factoring provides a simple an elegant solution to this cash flow problem. It gives your company an advance on invoices from credit worthy customers, providing quick funds that can be used to pay expenses and pursue new opportunities. The transaction is settled once your customers pays for the invoice in full.

Most factoring transactions are structured with two payments. The first one covers about 80% of the invoice and is provided soon after invoicing. The second one is for the remaining 20% (less the factoring fees) and is provided after your clients pays the invoice. Factoring fees vary and are determined by the size of your invoices, your sales and the credit quality of your clients. In most cases qualifying for invoice factoring is a lot easier than qualifying for business loans.

One advantage of factoring is that it is tied to your sales – and it grows with your sales. This makes it an ideal solution for midsized companies that need flexible financing to grow.

Large companies usually pay their invoices in 30 to 45 days. It’s a standard practice in which few companies make any exceptions. Lately, due to the past recession, companies have started lengthening their payment times. Many now pay their invoices in 60 or even 80 days. This has caused a number of problems to small business owners who depend on timely payments to be able to run their companies.

Why do many large companies take so long to pay their invoices? On the administrative side, paying an invoice usually requires that paperwork be reviewed by several people and that deliveries be checked. Furthermore, most invoice payments need to be approved by several layers of management. given all the moving parts, the process of getting all the proper paperwork and signatures can actually take a couple of weeks. However, there is another reason why companies take so long to pay invoices.

One of the main advantages of paying invoices in 30 to 60 (or more) days is that the company gets to use your product for free for a couple of months. One could argue that it’s the equivalent of getting an loan from you – the supplier. Delaying payments basically gives your client use of the cash that otherwise would have been used to pay you. From this perspective, it’s obvious why they chose to pay invoices in 30, 60 or even 90 days. This strengthens their cash flow.

But what can you do if you need the money sooner? Asking for a quick payment seldom helps, although sometimes you can get companies to pay you in about 10 days if you offer them a 2% discount. This is seldom reliable though. Another alternative is to use business financing. Although business loans can be used to solve cash flow problems, a better solution may be to use invoice factoring. Actually, invoice factoring is specifically designed to solve the problem from slow (but solid) paying customers. It advances funds on your slow paying invoices, providing the funds you need to cover operations. The transaction with the factoring company is settled once the client pays the invoice in full. Most factoring companies will advance funds based on the credit quality of your clients, provided your invoices are free of liens, judgments and other potential encumbrances.

Factoring can be an effective solution for companies that have good potential but cannot afford to wait for their clients to pay.

Most growing companies run into cash flow problems at one time or another. The recent recession has made this problem all too common, forcing managers to find strategies to cope with these problems. Many cash flow problems are caused by customers delaying their invoice payments. In the recent past, most commercial customers paid their invoices in 30 to 45 days. As conditions deteriorated, they started paying at slower rates, sometimes taking up to 70 days to pay.

Slowing payments can have serious repercussions for the business. At first, you can counter their effects by paying your own suppliers at a slower rate. If left unchecked, it may jeopardize your ability to meet critical payments – like payroll. One you are at risk of missing payroll the business is in grave danger.

One way to deal with this problems is to build a cash reserve. This is easier said than done as few small companies have the resources to build a reserve. Another alternative is to use business financing to cover the gap.

Using a business loan to cover expenses while waiting to get paid by clients can work if used properly. Most business loans are designed to buy goods and are paid on an amortized schedule. This makes them cumbersome to use if you are only interested in covering expenses while waiting to get paid. A better solution would be a revolving line of credit. The problem is that all these solutions are subject to strict banking underwriting standards, and are a viable option for companies with substantial assets.

There is a better alternative though. It’s designed specifically to solve the cash flow problems generated by slow paying clients. The solution is called invoice factoring. An invoice factoring program will give you a funds advance on your slow paying invoice. This enables you to cover business expenses while waiting for your clients to pay. Once your client pays, the transaction is settled by the factoring company.

As opposed to most conventional business financing products, invoice factoring is relatively easy to qualify for. You need to have invoices from credit worthy clients that are free of encumbrances and liens. This makes it an ideal solution for small companies whose biggest assets is a list of solid clients.

Corporate cash flow nightmares are more common than most people think. Thanks to the current uncertainty about the economy, many companies have started delaying payments to their suppliers. They still pay, but they pay later. Two years ago, invoices usually got paid in 30 to 45 days. Now they may take 60 or even 70 days to pay. Large customers delay payments for one single reason – it helps their own cash flow. They get to use the cash, that was destined to pay your invoices, for 15 or 30 more days. Think of it as an interest free short term loan that you make to them.

Having clients that pay beyond terms can create a cash flow nightmare. Many business owners run their business very tightly, with little room for error. It only takes a few late payments to throw operations into a tail spin. When this happens, business owners compensate by starting to pay their own bills late. This can easily get out of hand and start affecting the ability to meet payroll. If you are at risk of missing payroll you know you have a nightmare in your hands.

Since making clients pay quickly is no usually an option, there are two possible solutions. One solution is to start building a reserve fund ahead of time. This ensures you will always have money to cover all expenses. But this comes at a cost because money in the reserve fund can’t be used in other parts of the business. And, few companies have the resources to build the fund.

A second alternative is to look for business financing. This will usually solve your problem, if you get the right type of financing at the right time. Unfortunately, asking for a business loan when you are in the middle of a cash flow disaster seldom works. Most financial institutions will only give business loans to companies that have solid financial records.

A better solution may be to use invoice factoring, which provides an advanced payment for your invoices. Factoring covers your customers payment gap and provides the liquidity you need to operate your business. Furthermore, most factoring companies are used to working with clients that have financial problems or are turning around their business, so few will be too concerned if your financial statements show some problems.

Factoring is a very specific solution, it helps bridge the gap between delivery of services and payment, and can help stabilize cash flow. It’s an ideal solution for companies whose biggest problem is slow paying clients.

Finding business financing for a company has always been a challenge. to complicate matters, the current economic environment has made it a nearly impossible task to find investors. Nowadays, investors are looking for safe investments, and unfortunately, small and medium sized companies are not considered safe investments.

Although investor financing has many benefits, you should also consider alternatives that don’t require that you give up ownership in the company. One common way to finance a company is to use a business loan. Although business loans are well known, they can be difficult to get because they have to go through a strict underwriting process. To qualify for a business loan, most companies need impeccable financial statements, solid assets and a few years of positive operating experience.

One alternative to business loans is factoring financing. This solution specifically helps companies with cash flow problems that arise from slow paying clients. It provides a cash advance against slow paying invoices, enabling your business to cover operating expenses. By reducing the number of days it takes you to get paid, invoice factoring can help free cash flow that can be deployed to new projects and growth opportunities.

One of the advantages of invoice factoring is that it is reasonably easy to obtain. Most factoring companies structure the transaction as a purchase, meaning they buy the invoice from you. Since they are buying the invoice, their biggest concern is the credit quality of your clients. This means that small companies or medium sized companies with a short track record but very solid clients can usually qualify.

Factoring companies buy invoices in two payments. The first payment covers about 80% of the face value of the invoice. Your company gets this very quickly. The second payment covers the remaining 20% of the invoice, less the factors fee. This payment is usually provided shortly after your client pays the invoice in full.

Invoice factoring is a flexible financing solution that can help small and medium sized companies that have cash flow problems.

It’s not unusual for small and growing manufacturing companies to have some cash flow problems. Most of them stem from the fact that there is a delay between delivering your products and actually getting paid for them. This delay can last from 30 days and go up to 90 days and is a common industry practice.

The problem is that few manufacturing companies can wait that long to get paid. They have a number of current expenses that must be paid for – rent, supplies, electricity and salaries. The discrepancy between dollar inflows and outflows can cause major headaches to manufacturing company owners.
Getting clients to pay quickly is one possible way to fix this problem. It seldom works though. Most of your clients actually need to delay payments themselves to keep their cash flow straight. Another alternative is to use business financing to bridge the gap.

Most company owners will try and use a business loan to solve this problem. Although business loans can have several advantages, conventional loans tend to lack the flexibility needed to solve this problem. Furthermore, qualifying for a business loan can be a daunting task that requires weeks or months of work. Your lending institution will likely require that your company been in good financial health, have solid assets and have seasoned executives.

There is another solution that may work better than a small business loan. It’s designed to specifically reduce the gap between outflows and inflows – it’s called invoice factoring. Invoice factoring uses a financial intermediary (a factoring company) to finance your invoices while waiting for your client to pay. This strengthens your cash flow providing the liquidity you need to meet current expenses and tackle new orders.

Since your invoices are a liquid asset, most factoring companies buy your invoices outright. Because of this structure, they make most of their funding decisions based on the creditworthiness of your client. This enables you to leverage the creditworthiness of your clients and use it in your favor. Most small companies whose biggest assets is a roaster of good (but slow)paying clients can usually benefit from factoring.

Finding small business financing in the current environment is very difficult. Lending institutions are being very cautious and are only providing business loans to companies that have impeccable financial statements, a long history of growth and substantial assets. Because of this, few small companies can get a business loan or other forms of conventional financing.

Fortunately, not all financial problems need to be solved with a business loan. Many cash flow problems, common to small business, can be solved using invoice factoring.

Most small companies run into cash flow problems because they don’t have an adequate reserve of capital to handle unexpected growth or costs. This situation is worsened by the fact that small companies usually have to give clients 45 to 90 days to pay invoices. This leaves the small company with the hard costs of delivering their product or service while having to wait for payment.

Asking clients to pay their invoices sooner will not work. Most clients, especially large corporations, require 45 to 60 day payment terms. Most will have these payment requirements in their contracts and won’t show flexibility. And unfortunately, if you don’t provide them with payment terms, someone else will.

This is where invoice factoring comes to play. You can get an advance on your invoices using a financial intermediary, called a factoring company. This provides you with the liquidity you need to operate your business. The factoring company holds the unpaid invoice until maturity and then settles the transaction with you when the client pays.

One of the biggest advantages of invoice factoring is that it enables you to leverage your invoices. Factoring companies look at the credit worthiness of the companies paying the invoices as an important components in their funding decision. This means that a small company whose biggest assets is a client list of large credit worthy companies can usually qualify for this form of financing.

Sooner or later, almost every business will run into cash flow problems. Although ideally you want to prevent these problems, this is not always possible. Part of running a business involves, at times, living a little bit on the edge. Sometimes, you go a little farther than you should have.

One of the more common causes of cash flow problems is slow paying clients. These happen because most commercial sales are not paid immediately, but rather 45 to 90 days after the product or service has been delivered. Few business owners can afford to wait that long to be paid, though. There are constant business expenses that have to be covered.

Common wisdom suggests that companies should keep a cash reserve that is large enough to cover expenses while waiting to get paid. This works beautifully in theory but seldom in practice. The truth is that most small companies keep inadequate reserves.

One way to fix this problem is to complement the cash reserves with business financing. Selecting the right type of business financing to help with this problem is critical. Most business owners will first try to get a business loan. They soon find that business loans have difficult qualification requirements. The business must have a profitable track record and impeccable financial statements. Also, the business and the owners need to have substantial assets. Few will actually be able to get the loan.

However, a business loan is not always the right solution. You can eliminate the cash flow problem from slow paying clients by factoring your invoices. Invoice factoring provides you with a funding advance on your invoices. This enables you to cover business expenses while waiting to get paid. The transaction is facilitated by a factoring company, who buys the invoices from you (at a discount) and hold them until maturity. Since the factoring companies buy invoices, their biggest concern is that the invoice will be paid. Although the factoring company wants to make sure the company selling the invoice has no major problems, they are more interested in the credit worthiness of the company paying the invoices. This makes factoring an ideal solution for small companies who don’t have a lot of credit or a long track record – but have a solid list of clients.

Common wisdom suggests that companies should keep a cash reserve that is large enough to cover expenses while waiting to get paid. This works beautifully in theory but seldom in practice. The truth is that most small companies keep inadequate reserves.

One way to fix this problem is to complement the cash reserves with business financing. Selecting the right type of business financing to help with this problem is critical. Most business owners will first try to get a business loan. They soon find that business loans have difficult qualification requirements. The business must have a profitable track record and impeccable financial statements. Also, the business and the owners need to have substantial assets. Few will actually be able to get the loan.

However, a business loan is not always the right solution. You can eliminate the cash flow problem from slow paying clients by factoring your invoices. Invoice factoring provides you with a funding advance on your invoices. This enables you to cover business expenses while waiting to get paid. The transaction is facilitated by a factoring company, who buys the invoices from you (at a discount) and hold them until maturity. Since the factoring companies buy invoices, their biggest concern is that the invoice will be paid. Although the factoring company wants to make sure the company selling the invoice has no major problems, they are more interested in the credit worthiness of the company paying the invoices. This makes factoring an ideal solution for small companies who don’t have a lot of credit or a long track record – but have a solid list of clients.

One of the side effects of the current recession is that business financing has become hard to get. A few years ago, business credit was flowing and companies could shop from bank to bank looking for the best terms. Nowadays, even companies that have solid financial statements are having problems getting a business loan. This situation is not likely to change for the foreseeable future as many lending institutions have capitalization problems and won’t be able to lend much until these problems are solved.

Because of this, many companies that need business financing will need to find an alternative – or do without. One alternative that has been gaining popularity is invoice factoring.

Invoice factoring is designed to solve the cash flow problem that are generated when clients pay their invoices in 30 to 60 days. While extending 30 day payment terms is common for commercial clients, many small and midsized companies can’t afford to wait that long to be paid. They have a number of expenses that need immediate handling, such as supplier payments, payroll and rent. Factoring invoices can reduce the days outstanding on invoices substantially, putting your company on a solid financial footing.

The mechanics on invoice factoring are fairly simple. Once the work or product for an invoice is delivered, you sell the invoice to an intermediary company called a factoring company. The factoring company examines the business credit of the company paying the invoice (your client), and if acceptable, buys the invoice from you at a small discount. This provides a quick source of funding that can be used to cover operational expenses and grow the company.

Most factoring transactions are structured with two payments. The first payment, called the advance, is for about 80% of the invoice amount. The second payment, which is for the 20% reserve (less fees), is rebated once the invoices is actually paid in full.

The biggest advantage of factoring is that it’s easy to obtain. Most small and medium sized companies can get it, provided they have solid clients and no encumbrances on their assets. This makes invoice factoring an ideal solution for companies that cannot afford to wait 30 to 60 days to get paid by their clients.

Small businesses have been one of the biggest victims of the economic credit crunch. Some have seen their revenues go down. And almost everyone has seen their cash flow suffer. Clients that used to pay in 15 days are now paying in 30 or even 45 days. And those that used to pay in 45 days may now be paying in 60 days. The net effect of this is that cash flow weakens, and with it, the company’s ability to operate.

Although larger companies have sufficient reserves to wait for payments, few small companies do. And, due to the lack of credit, small companies usually need to pay their own bills sooner. This creates an unsustainable situation, where the end result is downsizing the company, if not closing it.

The most obvious way to solve this problem is to get a business loan. The problem, especially in today’s market, is that qualifying for business loans is very hard. Most institutions are being cautious, in part due to their own capital problems, and are only providing business financing to their prime customers. These are customers that have solid income statements, strong balance sheets and seasoned management teams. This also rules out a number of small and midsized business owners who also need the funding.

One alternative that is often overlooked is invoice factoring, a solution that is specifically designed to address slow payments from commercial clients. It helps by providing an advances for your slow paying invoices – this accelerates your cash flow enabling you to meet your obligations. You get immediate funds, while the factoring company who bought the invoice from you, waits to get paid. The transaction settles once your client actually pays the invoice. The factoring company charges you a small fee for the service.

The transaction is usually structured as a sale – where you sell your invoice to the factoring company. Because of this structure, factoring companies are more interested in the commercial credit of your clients than yours. This means that small to medium sized companies whose biggest asset is a list of solid customers can usually obtain factoring financing.

Finding the right type of business financing for your company can be a major challenge, especially in the current economic environment. Understandably so, institutions are behaving cautiously and only providing business loans to their prime clients. To qualify for a business loan, companies have to show that they have solid balance sheets, stable (or growing) income and an experienced management team. These requirements put small and medium sized companies in a competitive disadvantage since few will have the financial stability to qualify for financing, especially in today’s marketplace.

A business loan is not always the best solution to cash flow problems, especially if these are caused by slow paying clients. In most commercial transactions, clients have to pay their invoices in 15 to 30 days. However, most companies have been extending their payment terms to 45 or 60 days as a way to cope with the current credit crisis. Small businesses have been affected the most, because they can’t afford to wait 45 to 60 days to get paid. The need the funds immediately to fulfill their own obligations.

Factoring financing could be a good solution If the company’s biggest problem stems from cash flow and clients that take too long to pay. It is very different than a business loan. With factoring, a financial intermediary called a factoring company buys your invoices for an immediate payment. They wait for your client to pay the invoice and settle the transaction, while you get the benefits of the immediate funding. Most factoring companies will charge a fee for their services – usually a percentage based on the invoice.

One of the biggest advantages of working with a factoring company is the way the structure their transactions. Since they buy your invoices, their biggest concern is the credit quality of the company paying for the invoices. This allows you to leverage your client’s commercial credit and make it work to your advantage. Thanks to this structure, small companies that have a solid list of clients can usually qualify for this type of financing.

Factoring can be an ideal solution for companies that can’t afford to wait 60 days to get paid and that sell to solid commercial clients.