Invoice financing is not a brand new concept. However, it has been receiving much more attention and interest lately, largely because traditional commercial financing options are waning. For example, it has become increasingly difficult to receive a bank loan.

Invoice financing is much less expensive then other commercial finance options. Bank loans can be costly when considering the amount of interest typically charged. Even more costly, are credit cards, which can quickly cause a company to rack up a mountain of debt that may be incredibly difficult to repay. This is a threat, especially so, to small businesses who may utilize credit cards to make ends meet. Invoice financing is a very good way for a company to receive an advance on their invoices.

A Factor is a company that purchase invoices or receivables at a discounted rate. This allows companies to receive upfront monies for invoices that may not be due until 90 days. As stated before, waiting this amount of time to be paid can be problematic. In some cases, it may make it difficult for a business to meet their financial obligations. It can also stymie the growth of a company because they may not be able to purchase advertising or hire a marketing specialist who might be able to help them grow their business.

The average price that a factor will pay for invoices is about 70 to 90 % of their full value. These monies are given to the company right away and can be accessed is as little as 24 hours and generally no longer then 7 days. A company can use this cash for whatever they want. There are no restrictions.

After the factor has paid for the invoices, they will then collect them and return the money to company that originally sold them. This will not include their fees and any money they already paid for the invoices. Invoice financing is an excellent option for companies that are unable to wait the standard 30 to 90 days to receive payment for work they have already completed for their clients. As long as their customers have good credit histories, it is possible to receive an advance on those outstanding invoices regardless of their own personal credit history or the amount of time they have been in business. This makes it a good option for those with average-to-poor credit or who have just opened their doors.

1. Don’t let your accounts receivable get out of control. First of all, it is vital to have an organized accounts receivable department. You need to know who owes you what, and you need to know who is making payments. You also need to make provisions for following up on invoices that owe you money. An efficient workflow needs to be maintained so that you are receiving payments in a timely manner for your goods and services.

2. Maintain a good relationship with your financing partner. This is another essential point. Your financing partner – whether it is a bank, an investor or a factor – helps you get the cash you need to keep your business going. You need a solid, professional relationship with your financing partner to ensure that you can get the money you need, when you need it. Cash flow is vital, and you need to make sure you have incoming capital.

3. Don’t cut your advertising budget short. Many businesses make the mistake of cutting the advertising budget first thing. This is a mistake. The old adage “you need to spend money to make money” is most true of advertising. In order to sell products, and to reach your target market, you need to pay for advertising outreach. Of course, just throwing money into any advertising is inefficient. Instead, you need to have a coordinated plan. You need to figure out how you can best reach your target audience, and use your money efficiently so you get the most bang for your buck. Before you start advertising, do a little research and take the time to develop a coordinated plan of action.

4. Stay current with the latest technologies in your industry. Technological advances are always being made. Your industry is always growing, changing and seeing new things. If there are technologies that make things more efficient, or that provide the latest in industry needs, you need to make sure you are keeping up. This will help you lower costs in the long run, and it will show investors and customers alike that you are up-to-date and that you are aware of what is going on in the industry.

5. Treat your employees with respect and professionalism. Your employees represent you. Employees that are treated with respect and professionalism are more likely to be happy and work better. They will also say good things about your company and how it is managed. This is important. There are few things that can damage a business reputation like an employee that has a legitimate complaint about he or she has been treated by the management. Having employees that work hard and do so efficiently can help you manage costs better, and will keep your company in good shape. They are also more willing to go the extra mile when it is needed if you treat them well.

6. Network in your community with other business owners. Networking is important. It is a good way to forge relationships. Also, networking can provide you with the ability to find good partners for your business ventures. You can also find new clients through networking, as well as find suppliers that can help you come to a more equitable arrangement. Being involved and visible in the community also has other advantages. People are more likely to do business with people they know, so getting to know people can bring you more business.

7. Make every business deal a win-win for all involved. If you want a reputation as good business person, you need to deal fairly with others. If you take advantage of other businesses in your dealings, eventually no one will want to associate or do business with you. This can cause you to lose business. Additionally, customers and clients may hear that you are not a pleasant person to do business with, and take their patronage elsewhere. You want to cultivate good feelings. You do not have to let others get the better of you, but you should not strive to get the better of others. Look for solutions that provide an equitable arrangement for all involved.

If you take care to follow sound practices and work at building your business in a practical, organized and fair manner, you will find business success.

If we consider the areas of economic activity which have been largely responsible for this improvement, the result becomes even less impressive. We are told that the catering and leisure industry has had a significant impact on the figure. But surely December is the busiest time of the year for pubs, hotels, restaurants and allied establishments due to the Christmas and New Year festivities. And, of course, January and February are the quietest time of the year for those trades. So let’s all try to guess what affect this will have on improving the current quarter’s statistics. Let me think now, oh yes – none.

The increase in Government and Public Spending also assisted the figure to climb into the black, but how long can this go on? After all, it is money which has been provided by the taxpaying public which is being spent. Robbing Peter to pay Paul. A General Election must take place by May at the latest, and whichever party obtains a majority it will have to impose swingeing tax increases and cuts in public spending. On the 1st January VAT returned to its usual level of 17.5% and there is widespread opinion in Westminster that it will soon be increased to 20%.

We may be technically out of recession, but the hard reality is that we have been sliding downwards for the last eighteen months and we are now at the bottom of the trough. It’s going to be a long and difficult climb back to the happy pleasures which we took for granted and enjoyed pre-recession.

Source: Market Wire, February, 2010

“This is a good start. But it’s a small start,” said G. Michael Moebs, chief executive of Moebs Services Inc., a Lake Bluff, Ill., research firm specializing in U.S. banks.

The $30 billion in Troubled Asset Relief Program funds targeted by Mr. Obama represent about 4.3% of the $700 billion in small-business loans held by U.S. banks and savings institutions, according to the Treasury Department. As of November, the 22 largest banks that got capital infusions through TARP had $257 billion in small-business loans, the Treasury said.

Gene Sperling, a counselor to Treasury Secretary Timothy Geithner, said, “The president’s plan will mean $30 billion in capital for smaller banks, which has the potential to leverage a far higher amount of actual new small-business lending.”

Many details of the plan remain unclear. In one scenario being considered, the U.S. government would let banks get an amount equal to 3% to 5% of their assets. Required dividend payments by the banks would be reduced if they substantially increase their business lending.

Mr. Obama is likely to face resistance in Congress, especially from Republicans. “It’s just another use, maybe a good use, but just another use of TARP funds that wasn’t originally intended,” Sen. Richard Shelby (R., Ala.) said Thursday. The Senate Banking Committee’s top Republican said federal officials should push for the return of all TARP funds before discussing any new uses of the money.

Rep. Nydia Velazquez (D., N.Y.), chairwoman of the House Committee on Small Business, said lawmakers “need to be open to new approaches,” since many small businesses “still can’t find affordable loans.” Pending legislation that would allow the Small Business Administration to make more loans directly to small businesses would be a more effective way of helping companies that are struggling to find capital, she said.

The banks referred to by Mr. Obama in his first State of the Union include more than 7,500 financial institutions with assets of less than $10 billion apiece. Lenders in shaky financial condition likely wouldn’t be allowed to participate in the program.

According to a Senate report last year, American businesses with fewer than 20 employees have suffered steeper job losses during the recession than bigger companies. A loan-induced jolt caused by steering TARP funds to small businesses could help Mr. Obama as he struggles to reverse his recent political slide.

Some bankers said loan volume isn’t likely to surge until more consumers open their wallets. “The truth is small business is largely consumer-driven right now, and consumers aren’t spending,” an executive at one regional U.S. bank said Thursday. “The biggest thing is to get jobs growing, which will increase consumer spending.”

Even if banks flock to the $30 billion, they could wind up deepening their exposure to loan losses. For example, Carol Lundgren said a loan would help Infinity Stone Corp., the Portland, Ore., granite-countertop manufacturing and installation company she owns with her husband, ride out the economic slump. But the company already has missed two lease payments owed to PNC Financial Services Group Inc. The couple laid off 26 of their 48 employees, and revenue shrank to $1.6 million last year from $3.2 million in 2007. Business is starting to rebound, but “it might be too late” for a loan to make much of a difference, she said. “There’s a point in time where we get too discouraged.” PNC declined to comment.

Separately, Mr. Obama will travel to Baltimore on Friday to flesh out details of a proposed $33 billion tax cut to spur small businesses to hire new workers or boost wages. Employers would get a $5,000 tax credit for every net new worker hired this year and reimbursement for Social Security taxes paid when they increase wages.

Though all businesses would be eligible, the Obama administration would focus on small companies by limiting the maximum credit to $500,000 per employer. The tax breaks wouldn’t be available to firms that reduce employment or payrolls this year, or those that replace full-time employees with part-time workers. A business wouldn’t be allowed to claim the credit by simply changing its name.

By MARSHALL ECKBLAD

Factoring is fast, doesn’t require that a business have a good credit score, is available even for new companies and poses less risk then many other financing options. Below, we will discuss the advantages of factoring a little more in-depth. Before we begin, it is important to briefly explain what factoring is.

Factoring essentially involves a company selling their invoices or receivables to what is known as a Factor. A Factor purchases those invoices at a discounted rate, collects the invoices from the company’s clients, returns the balance and then receives a pre-determined fee. Factoring, or invoice factoring, is an excellent option for businesses that have not been operating very long, or that have poor credit. These are not the only types of companies that can benefit from this type of financing, but they may be the ones most grateful for its availability. This is because it can be difficult for businesses which haven’t been around for long or that don’t have the best credit, to qualify for a bank loan or angel investing. Venture capitalist may also shy away from them if their profit margins are not high. As a result, these companies have few options when they are in need of cash.

To fully understand why invoice factoring is such a great way for companies to generate capital, let’s discuss its advantages.

The process is fast: A company will be able to collect money for their invoices within seven days, often times in as little as 24 hours.

A businesses credit score is inconsequential: It doesn’t matter if a company has a credit score of 400 as long as their client’s credit scores are high. If their clients have good credit a company will be able to use factoring as a funding option.

It is an available option for new companies: Even if company is just starting out, as long as they have clients that owe them money via invoices then they will be able to generate capital in this way.

Less risk: A company that uses factoring is leveraging previous work or products sales. They are not securing a loan with any type of property, equipment or their business, which means fewer risks. Sure, there will be fees if a factor is unable to collect or is unable to collect in a timely manner. However, there is less risk to a company that chooses to use invoice factoring, then one that takes out a bank loan.

For someone who has little to no experience running a business, this may be quite surprising. However, persons who have been in the trenches, are quite aware that a company can be profitable and still be cash poor. Most companies that find themselves with not enough capital to meet their obligations, will turn to a bank in hopes of obtaining a loan. This can be a decent option in some cases but may not be available for every business. There are also some huge disadvantages to using a bank loan. We will discuss some of those below. First, we will mention what might be an excellent choice for businesses in certain industries, invoice discounting.

Invoice discouting allows a company to sell their invoices for immediate cash. Instead of waiting 60-90 days for their customers to pay their invoices, they can sell them to a factoring company, who may purchase them for 70%-90% of their value. This makes it possible to obtain the money needed to keep a business running, very quickly. A company does not have to wait weeks for a bank loan but in fact, can have a significant amount of money in their accounts in as little as one week. These monies can be used to pay employees, rent, materials, suppliers or utilities. It can also be used for future growth. Some companies are forced to turn down jobs or forgoe expansion because they don’t have the money on hand to finance it. Invoice discounting provides them with the needed capital for immediate growth and to cover today’s expense.

Bank financing is the option that many business owners choose when they need to raise money for their companies. If a loan can be obtained, this money is quite reliable and this method is a pretty tried and trued method. However, it is not always the best option and for some companies is not even an option at all. Banks are extremely choosy about who they give loans to. A company will need to have been in business for a certain amount of time. They must also have very good credit. A company that has average to poor credit will likely not get very far into the loan process, before they are turned away. Companies that are able to get a loan, may actually be putting themselves in a situation tha tisn’t necessarily advantageous. This is because a loan involves taking on new debt. This must be paid back and may weaken a company’s financial standing, making it more difficult to obtain a loan in the future or to pay their current bills.

Invoice discounting allows a company to get the money that is needed without relying on debt. Instead, they are leveraging the work that they have already completed or are contracted to complete. Invoice discouting allows businesses to be advanced this money instead of waiting for the customer to pay it.

There are numerous ways for a business to get the funds that they might need, though there is no guaranteed way. Loans are the most common way to secure funds though they are difficult to obtain for many. New companies and those with bad credit have the hardest times. One very good option is to use accounts receivable financing, and invoice factoring, also known as invoice financing.

Invoice factoring involves one company, the factor, purchasing the invoices of another. Invoices are the outstanding balances owed to the company for jobs already performed. This is money that the company expects to receive from their customers. A factor will buy these and pay the business owed the money a percentage of the outstanding invoice upfront. The factor will then collect on the invoice, pay the money back to the company and then charge them a fee. This fee will be determined and agree upon before the contract is signed.

The benefits of invoice financing are many. It allows for companies to get a lump sum of money extremely quickly and without having to collect on the invoices themselves. In fact, most factoring deals are finished (from start to finish) in about 5-7 days. This money can be used for whatever the company needs it for. Materials, supplies, insurance or operating expenses are commonly paid for with these monies.

Accounts receivable financing may also be ideal for companies that do not have an internal collections staff. This allows them to essentially outsource those duties to a factoring company that is experienced. Not only does a company receive an advance on their invoices but they do not have to do any of the collections. This is a win-win situation for everyone involved, or at least it should be if done correctly.

Companies on the fast track, will often times need additional money for continued growth. Even though they may be making sales, if the invoices are unpaid, they will have a cash flow problem. Accounts receivable financing and invoice factoring can help remedy this problem by providing companies with the money they need.