Small Business Account Receivables Factoring: A Helping Hand In The Early Days
During the small business start up phase, cash flow is crucial. Of course, positive cash flow is vital to business at every stage of development but it is especially critical to the business start up phase as it will be difficult to attract other financing options with no trading history. When a new enterprise opens its doors for business the managers will be very focused on making sales to bring in revenue. Unless the business operates as a retail outlet most sales will be offered on lines of credit and it is essential that the principles of good business finance practice are observed.
No matter how small the new business, it must be professional in the way it manages its business finance. Sales should not be made at any cost, without observing good credit control practice, just for the sake of making a sale. Credit checks must be made on customers who want to purchase goods or services on credit. If the credit report is not positive, it makes sense not to extend credit, however much the sale is needed. Once the business has made some sales it must then wait until the end of the agreed credit period before it can collect the cash due. For this reason it is sensible to look at the overall cash position of the company when extending credit. If the company is not cash rich consider offering credit for 15 rather than 30 days. Because so many business start up costs must be paid up front, most start up businesses are cash poor and for this reason, having made some sales, they may want to consider small business account receivables factoring. Account receivables factoring is a form of business finance that does not increase the liabilities of the company. It is effectively a way of obtaining the cash that would be due from customers in 15, 30 or 60 days time, immediately. This can have tremendous advantages for a small business as it means they do not have to wait for their money. There are drawbacks. Finance companies, such as West Asset Management, that offer small business account receivables factoring do charge a fee, which is usually a percentage of the invoice value, but this may be a small price to pay if it ensures the longevity of the business. In addition to the advantage of being able to benefit from the cash sales have generated, accounts receivable factoring usually means the factoring company do the collection of the debt which simplifies the administrative functions within the small business. Some small businesses are wary of involving factoring companies for fear that it may send the wrong message to their clients and customers. Factoring is often associated with financial problems within a company and this could dissuade potential customers from making a purchase. However, factoring is a no-notification form of financing so most clients remain unaware of the arrangement until such time as the debt is due to be paid. Small business account receivables factoring can be a lifeline for business start ups, providing an affordable form of business finance that allows the new business to meet its financial obligations in a timely manner. |