Why Qualifying for Invoice Factoring is in Your Business’ Best Interest

It is the end of the fiscal year, and you are trying to figure out the status of your business. Unfortunately, trying to drive your business based on only year-end information can take it right into the ditch. Every small business should have a dashboard with key metrics that are being evaluated continuously so that small (or large) corrective actions can be taken as necessary. Unfortunately, it is too late to try and do it at the end of the year, which is why each business should be analyzing five to seven metrics each month including:
• Total monthly revenues
• Total monthly expenses
• Number of new customers/clients
• Number of repeat customers/client
• Cash Flow

Each of these, along with two additional chosen metrics, should be compared to the targets projected for each month. This will allow a business owner to take the steps necessary on a monthly basis to guide the business in the right direction. These measurements are critical when in a slow economy.

What about traditional loans?

Many small businesses continue to struggle with the very slow economic recovery. Approximately 80 percent of loan requests by small businesses are turned down. The reasons can range from bad credit to no collateral to not being in business long enough. Businesses are struggling with a slow economy and also with obtaining working capital.

Over and over, bankers state that they are lending to small businesses, but when asked who those businesses are it was apparent that only a fraction of small businesses are able to obtain bank credit. In fact, a couple of lenders admitted that over 80% of loan requests are being turned down.

So which of the small businesses are able to obtain credit? The general criteria includes at least two years of operation, solid financial statements, last year profitable, good credit scores, sufficient collateral, and an acceptable industry. If a company meets these general criteria, then the bank will more than likely delve into the business asking a number of questions regarding market, customers, and operation. If your small business meets the above criteria, it is more than likely that you will be able to obtain a loan or line of credit.

Is there another option?

For the 80 percent that are turned down for credit, what alternatives exist today? Thankfully, there are services that provide cash advances with debtor financing, invoice discounting assignment and factoring that can provide these alternative financing tools for many small businesses, which can help many enterprises that do not have the qualifications for traditional loans or lines of credit.

As happens every year, many small businesses may need extra working capital for year-end expenses. The choices are slim when funds are needed quickly. A bank loan, if applicable, may take weeks, but there is an “off balance sheet” form of alternative funding that can provide cash quickly and easily.

Small businesses need other options. Alternative financing such as making use of an invoice discounting assignment may assist many of these businesses especially if the business has current receivables. Through invoice factoring services, small businesses can get cash to a small business owner in as little as 48 hours. The service is fast and efficient and can provide that year-end working capital at the time it is required. Factoring companies can even purchase quality receivables providing cash quickly even with low credit scores, no collateral or insufficient time in business. Up to 90 percent can be advanced against receivables purchased providing cash for expenses, expansion, payroll or other legitimate business needs. This is a viable alternative in today’s economy.

What’s required?

As part of the due diligence process, most factoring companies will ask applicants to provide financial statements during the application process. Also, exceptions may be made for smaller companies, and bank statements may also suffice for some.

Many prospects may balk at the idea of providing this sort of documentation. However, providing requirements such as these actually maximizes the chances of successfully acquiring financing, so it is really in your best interests to comply.

Suffice it to say, when a commercial invoice discounting and factoring company asks you for financial statements, they are evaluating more than just the statements. They are evaluating whether you run a business that is well managed and keeps careful track of their finances. This is very important, and in some cases, it may be more important than the numbers in financial statements themselves.