Accounts Receivable Financing and Factoring: How it Helps Small Biz Cash Flow |  |
| Accounts Receivable Financing and Factoring: How it Helps Small Biz Cash Flow Posted: 05 Aug 2012 11:00 AM PDT Say you’re strapped for cash. You don’t exactly need a small business loan, nor do you have the time to go through the application process. Although you are expecting several invoices to be paid by large clients in the upcoming weeks or months, you need money now to pay your employees and vendors. What’s the solution? Accounts receivable financing or factoring might be an option for you — depending on your industry and the nature of your business. What is Accounts Receivable Financing? Accounts receivable financing involves borrowing against your receivables or selling your receivables to a company that will pay you an amount equivalent to the invoice amount due you, less a discount. The amount of the discount varies depending on the size of the transaction, the extent of risk that the financing company (sometimes called a “factor”) has to take to collect the amount due, and other matters. You’d get more for an invoice payable by a blue chip company that’s due soon versus one that’s, say, 90 days past due from a weaker payor. Factoring has been around at least 500 years, says Dan Casey of AccountsReceivableFinancing.com. He notes that it involves the:
Here is a breakdown of different accounts-receivable financing types:
So with these types of services, you can either borrow against the money you expect to come in soon, or sell the invoice itself at a discount. The net effect in either case is that you get a lot of money a lot sooner. You can see other benefits and drawbacks in the chart above. Benefits of Accounts Receivable Financing The primary benefit to these financing services is to help small businesses get cash quickly. It’s particularly useful for businesses that get paid large invoices by clients that may pay slow for one reason or another (such as large corporate clients, or when part of a large multi-phase government contract). Yet, in the interim that small business still has a payroll to meet — putting the business in a cash flow bind. Accounts receivable financing can also help free up working capital. Because so many businesses have funds tied up in inventory, getting paid for invoices quickly is paramount. Getting financing takes that worry out of the equation for small businesses. Factoring, where you actually sell the invoice outright and the factor takes over collection, can take away the headache of chasing down payments from clients. That alone can save a small business time and money in the form of internal staff resources dedicated to follow-up and collection. What Accounts Receivable Financing and Factoring Costs Just like any other type of financing or loan, you will pay for the privilege of getting access to cash quickly. Casey says at his company, invoice financing fees can vary from 1% to 3% per month. The rate you’ll pay depends on the size of the transaction, your monthly dollar volume and your credit worthiness. The fees will also depend on whether you’re getting factoring financing or accounts receivable financing. Is It Right for Your Business? Accounts receivable financing companies often specialize in a particular industry or type of transaction, e.g., staffing services industries or government contracts. When looking for such financing, check their website or ask if they handle transactions in your industry or of your type. Consider your reasons for needing quick financing. Is it a temporary problem? If not, it might be indicative of something bigger that needs to be addressed. Accounts receivable financing is not designed to buy time to hold off the inevitable. How much are you willing to pay for the privilege of getting access to money faster? In essence, accounts receivable financing is like dropping your prices. On the other hand, it might be well worth it if it keeps your cash flow steady and uninterrupted — the alternatives (drawing on expensive credit cards or incurring late charges) could be more expensive. You really have to look at the big picture and the full impact. Speak to your accountant to understand the overall financial impact on your company. From Small Business Trends |
| Read Leapfrogging and Generate Surprising Business Results Posted: 05 Aug 2012 05:00 AM PDT
This is the message of my latest summer read, a new book called Leapfrogging: Harness the Power of Surprise for Business Breakthroughs by Soren Kaplan (@sorenkaplan). What's Leapfrogging? The quickest way to get to the core of Leapfrogging is to give you the definition that sits on Soren Kaplan's Twitter profile and the first page of the introduction:
Hmmm, sounds a little like innovation to me – maybe it's innovation for the new world of work. Early in the book, Kaplan gives us his philosophy on Leapfrogging, surprises and their connection to breakthroughs – here are a couple of them:
This is the core message of the book and it's supported by Kaplan's "LEAP" process which stands for: Listen – Start with yourself and not the market. All the market research in the world can actually hinder innovation. Explore – Go outside to stretch the inside. Our blind spots – or the areas that we don't know, that we don't know , are holding us back from breakthroughs. Once we uncover these blind spots, our minds are opened up to see things differently. Act – Take small simple steps again and again and again. Don't assume that your breakthrough will come from one big brilliant idea. Take small steps toward your goal. Persist – Take the surprise out of failure. You can't succeed without failing. In fact, failure is mandatory, especially if you are creating something new and different. The world isn't structured for this new thing you are creating. So stop being surprised that you failed. YAY for failure! Seize – Make the journey part of the surprising destination. Focus on your bigger purpose and practice humility. That way you'll see the road signs that will take you where the breakthrough is. Soren Kaplan is a Living Leapfrogger Soren Kaplan is the Founder and Managing Principal of InnovationPoint. He leads strategic initiatives and provides leadership development for organizations that include Colgate-Palmolive, Disney, Pepsi, Visa and many more familiar brands. He is also and Adjunct Professor within Imagineering Academy and NHTC Breda University of Applied Sciences in the Netherlands. We meet our author in the beginning of the book as he's headed into a Paris café to write this book. At the time it was still an idea about how business owners and companies create business breakthroughs. That's when he has a leapfrogging moment – right there in the café! That's when I realize that he's not just researching and writing about a topic, but actually living it and allowing his insights to impact how he lives in the world. Over the course of his research with major organizations and his experience in the field, he's outlined a process and a way of behaving in the world that makes transforms surprises into breakthroughs and breakthroughs into innovations. Why Read This Book? Aside from the fact that it is interesting and entertaining, you'll want to read this book because it will have you reflecting on all the different ways that you are disrupting the breakthrough process for yourself. The start of each chapter has the top ideas frontloaded so that you can reflect on the key points as you read through the case studies. You'll also find reflective "questions to consider" at the end of chapters and sections that you can answer for yourself, in a journal or along with your team. I'd recommend this book to any small business team or corporate team. It's a book worth reading as a group and talking about. I think that teams will uncover a handful of practices and strategies that they can use inside their organizations that, when put into practice, will create breakthroughs and innovations that will take their business forward in any economy. From Small Business Trends |
Surprise! Surprises are only fun if they are the good kind; winning the lottery, walking out on Christmas day to a beautiful Lexus with a big red bow or just coming home from a long hard day to clean and folded laundry. But there is something more to the idea of surprises; they are a critical component of innovation and success if only we could learn to harness them.| You are subscribed to email updates from Small Business News, Tips, Advice - Small Business Trends To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
| Google Inc., 20 West Kinzie, Chicago IL USA 60610 | |
No comments:
Post a Comment