The current post recession economy has left a number of companies in deep financial trouble. For some, revenues dropped below expenses, forcing cutbacks. For others, cash flow suffered because customers started paying slowly, starting a chain reaction of missed supplier payments, missed payroll, delayed orders among other problems. If there is one thing that the current economy has provided for small business owners – it’s plenty of opportunities to get into financial trouble.

Many small companies that have run into financial problems could be helped with the right type of business financing. The problem is that companies that have financial problems usually don’t have access to business financing. Financial institutions are very conservative and will only lend money to companies that have solid collateral, impeccable financial statements and a solid track record of profitability. This will rule out most small businesses and almost any company that is in financial trouble. It’s the common catch 22 – where businesses that could benefit from funding don’t have a way to access it.

However, there is a business financing solution that has been gaining popularity with troubled companies – it’s called invoice factoring. Invoice factoring solves one common issue for small companies – cash flow problems created by slow paying customers. It solves this problem by working with a financial intermediary – called a factoring company – that advances you a payment for your invoices and then waits to get paid by your customer. This provides your company with the liquidity it needs to be able to meet its obligations on time without worrying about slow payments.

Factoring financing does have one important limitation though – it can only help companies that have cash flow problems that are created by slow paying customers. It cannot be of much help to companies that have other financial problems – such as low sales.

One of the advantages of factoring financing is that it is easier to qualify for than most conventional financing solutions. Generally, the most important requirement is that your customers need to have good commercial credit. This is important because your invoices are the collateral for the transaciton. Additionally, your company will need to be free of legal and tax problems.

Another important advantage of invoice factoring is that it usually does not have a fixed limit – like a loan or credit line. The factoring line is usually dynamically tied to your revenues, and grows as your business grows – provided you are working with solid customers.

One of the consequences of the recent recession is that companies have become more guarded and conservative with their cash flow. For example, many large companies are conserving cash by paying their invoices more slowly. In turn, this has affected smaller companies who depend on steady predictable cash flow to be able to meet their obligations. Likewise, smaller companies are also doing the same thing and trying to pay their invoices slowly as well. Ultimately, everyone’s cash flow is being affected.

The problem with this is that many small companies live invoice-to-invoice (not unlike paycheck-to-paycheck) and a delay in invoice payments can easily send their finances into a tail spin. And since few small companies have any meaningful cash reserves, a delay may impact their ability to pay suppliers – and more importantly – their ability to meet payroll. Missing payroll can have substantial negative consequences that could ultimately lead to the closure of the business.

Your first line of defense to prevent a cash flow shortage is to build a cash reserve. This is easier said than done since most small businesses don’t have the wherewithal to build a cash reserves. But if you can build a cash reserve, your company will be in a better position to weather the inevitable storms that will hit your cash flow. If building a cash reserve is not an option, then you should consider using a business financing solution that can allow you to cover payroll and other expenses if things get tight.

Invoice factoring is a business financing solution that can be used to correct cash flow issues relatively quickly and without the hassles associated with conventional financing. It works by correcting the problem at the source. It provides you a cash advance for your slow paying invoices, providing the liquidity you need to meet payroll and other important expenses. With an invoice factoring solution you can eliminate the uncertainty of client payments, enabling you to obtain a more predictable cash flow.

One of the advantages of factoring is that the most important thing you need to qualify for this type of financing is solid commercial customers. It’s ok if your customers pay slowly – provided that they pay reliably. Aside from this, your company needs to be free of legal and tax issues. And factoring can be deployed fairly quickly – usually in a week or two.

Another advantage of factoring is that it’s dynamically tied into your sales. This means that it can be increased easily as your sales increase, provided that you are invoicing credit worthy customers. This makes invoice factoring the perfect solution for small companies with good prospects that are hindered by cash flow problems.

Although the economy is recovering from a recession, for many freight carriers and brokers the current environment does not feel like an economic recovery at all. New business is harder to come by and cash flow pressures have increased as customers are paying their invoices slowly. Having tight cash flows is a very common problem in the industry, and leaves companies in a precarious position. This is because small carriers have many obligations – such as trucks, fuel and drivers – that need to be paid periodically and few can afford to wait for slow paying customers.

One way to solve this problem is to start requesting faster customer payments. This can sometimes work, especially if you offer your shippers a discount for paying early. Offering 2% for a payment in 10 days or less is quite common . The problem with this strategy is that you are still at the mercy of your customer who may – or may not – pay quickly.

A second way to solve this problem is to get conventional business financing such as a loan or line of credit. While a line of credit would certainly help address this cash flow problem, they are very difficult to obtain in this environment. Banks are notoriously risk averse and will usually demand strong collateral, a long track record and impeccable financial statements before providing financing. The problem is that few, if any, small carriers (or brokers) will meet this criteria.

A third alternative to solve this problem is to use freight bill factoring, a form of financing that can be used to speed up payments from slow paying shippers. It works by using a third party company, called a factoring company, that provides a cash advance for your slow paying invoices. The cash advance can be used by your company to cover expenses and take on new opportunities. The transaction closes once the customer pays the invoice in full. It’s common for carriers and brokers to factor invoices on a regular basis, thus ensuring smooth cash flow.

One advantage of freight factoring over other solutions is that it’s easier to obtain. The most important requirement to qualify is that your shippers need to have good commercial credit. This is important because their invoice is the collateral that the factoring company is financing. Aside from this, your company needs to be properly established and be free of legal and tax problems. Another advantage of invoice factoring lines is that they can be implemented very quickly. It’s common for a line to be up and running within a week or two.

Perhaps the most important feature of factoring is that it’s dynamically tied to your revenues. This means that the line can increase easily as your sales increase – provided your shippers have high quality credit. This makes freight factoring an ideal solution for small and medium sized freight companies with growth potential whose main problem is that their customers pay slowly.

Slow paying customers can drain your company’s resources and create a serious drag on your company’s cash flow. In an ideal world, the best way to avoid slow paying customers is not to sign them on in the first place. But in reality things are never that simple, and especially nowadays, even large corporations also pay their invoices slowly. It’s just how things work in the current economy so it helps to have a plan to del with slow paying clients.

With this in mind – what is the best way to deal with slow paying customers? In reality, there is no best way. Rather, there are a number of steps you can take to make sure you get good customers with solid payment records. If you follow these steps diligently you will minimize the chances that you will have problems from slow paying customers.

There are two things that you can before singing on a customer that will reduce the likelihood of having payment problems. First, when you work with clients you should always have an attorney written contract that outlines all the critical points of the sale, including the payment terms and the product/service acceptance criteria. This is critical because it puts all expectations in writing and gives both parties an opportunity to measure performance. Second, you should only extend payment terms to commercial customers that have a solid payment track record. To do this you will need to check your client’s commercial credit or references. Dun & Bradstreet and Experian both produce well respected business credit reports that are available online.

The next step is to manage your receivables properly. There should be a dedicated person that calls the customer shortly after the sale to make sure that they are happy with the product or service. This will help you identify potential disputes so you can resolve them quickly. And If the invoice remains unpaid after the due date, be sure to call the customer promptly to check on the status. However, be mindful of how often you call the customer since calling too often can cause problems. Lastly, you should always be respectful, polite and professional with all customer interactions.

However, there are times when you follow all the right steps and customers still pay slowly. This can create a cash flow problem for your company. In that case, you should consider using invoice factoring to accelerate the payment of your invoices. Factoring is a form of business financing in which a funding company, called a factoring company, advances funds against your slow paying invoices from credit worthy commercial customers. This provides you the needed funds to operate your business and relieves the pressures created by slow paying customers.

One of the advantages of factoring is that it’s much easier – and faster – to obtain than conventional business financing. Since factoring companies use your invoices as collateral – it’s critical that you work with credit worthy customers. Aside from this, your company should be free of legal and tax problems. Most factoring lines can be implemented in a couple weeks – which is comparatively fast. these Teatures make invoice factoring an ideal solution for growing firms the have good, but slow paying, customers.