Small Business Factoring Helps Companies Grow

May 8, 2016 | by OBC

Thousands of small businesses find themselves facing the same dilemma on a daily basis, year after year. These organizations typically possess the desire, skills, and even customer-base to expand their operations, but they often lack the financing necessary to take that leap. It’s common for these businesses to work with credit worthy customers, but their customers’ payment terms simply are not conducive to growth. When a business is receiving payment on net 30, net 45, or even longer terms, this delay in receiving working capital can often lead to stunted growth or, in extreme cases, shutting down entirely if small business factoring is not utilized. If you find that these payment terms are a hindrance to the growth and success of your business, there is a great chance that small business financing can help.

Invoice Factoring Provides Immediate Working Capital

When a business completes a service for its customer, they no longer have to wait several weeks or even months to receive payment. As soon as the work is completed, the small business can send a copy of its invoice to the accounts receivable factoring company and receive payment that same day. Typically, a small business will receive 80-90% of the gross invoice value up front. Then, the accounts receivable financing company waits the full term for the customer to remit payment. As soon as payment is received, the small business funding company deducts a small financing fee and refunds the remaining reserves to the small business client. The client is able to utilize their factoring proceeds for just about any commercial use they deem necessary. Oftentimes, clients will use this working capital to acquire materials needed for future jobs, cover general operating overhead, make payroll, or for a variety of other business-related reasons.

Proceeds Can Be Used for Payroll Funding

One of the most common problems facing small businesses is the ability to cover payroll. If a customer does not pay the business for 30 days, or more, that business cannot simply delay paying their employees. Employees expect to be paid every two weeks, and they do not care how long it takes your customers to pay when they have bills of their own to cover. Therefore, small businesses often find the ability to sell their receivable as a lifesaver for funding payroll in a timely manner. The act of payroll factoring also opens the door to growth for these small businesses. Companies that factor are now able to hire additional staff and accept more and larger orders from their customers without the worry of being able to meet payroll funding deadlines.

Small Business Factoring Companies Can Provide Purchase Order Financing

Another dilemma often seen with smaller manufacturing companies is the need for assistance with acquiring materials in order to meet a customer order. These manufacturers have the ability to obtain purchase order financing whereby the small business factoring company will help to secure the materials needed to complete a new order from the customer. Then, as soon as the order is fulfilled and the customer is billed, the lender will purchase the new receivable to pay off the PO financing and help the manufacturer obtain working capital. According to a CNN Money article by Parija Kavilanz:

“In a new quarterly survey of small to mid-sized manufacturers, 26% of 268 respondents cited “lack of capital to grow” as their biggest challenge at a time when they need loans to hire more workers, buy new equipment and aggressively market themselves.”

PO financing and invoice factoring for manufacturers unlocks the door to growth for small and medium-sized companies which may have turned down large orders in the past due to a lack of working capital. With the assistance of the top invoice factoring companies and purchase order financing, they can now afford to accept larger orders and grow their company without obtaining a traditional line of credit.

Common Industries That Small Business Factoring Benefits

While this is a fairly comprehensive list of industries where small business financing is often used, it is by no means complete. If you feel that small business factoring and PO financing may help your business, but your industry is not listed here, feel free to give us a call to discuss your situation and financial needs. We’ll quickly help determine whether or not we can help.

Conclusion

If you manage a small or medium-sized business and find yourself facing cash flow problems, give us a call today. We help to secure working capital solutions for dozens of companies, across all different industries, on a daily basis. We’re always happy to discuss your unique financial situation and capital needs to help find a solution that is right for your company.

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