Most financial institutions provide financing based on your company’s collateral, your assets, the strength of your financial statements and your track record. Few companies with cash flow problems can show solid financial statements. Furthermore, most institutions can’t provide business financing quickly. Most require a month or two to complete the process. If your company needs emergency financing, waiting a month can spell disaster. However, ff you have a specific type of cash flow problem, there is an alternative that is usually easier (and quicker) to obtain than a business loan – it’s called invoice factoring.

Most companies that that sell commercial goods or services have to give payment terms to their clients. This means that they have to wait up to 60 days to get paid for their services. On the other hand, they also have to cover their current business expenses regularly. This creates a timing gap between income and expenses. Companies manage this timing gap by paying for expenses out of their reserves, while waiting for customers to pay. Sometimes due to circumstances, the gap becomes unmanageable. And that is where companies run into problems.

The simplest solution is to close the timing gap by asking customers to pay quickly . This can work if you offer them an incentive, such as a 2% discount for quick payments. But ultimately, you will end up at the mercy of your customers payment habits. A better solution may be to factor your invoices.

Factoring provides your company with a quick payment for its invoices by using a financial intermediary. The financial intermediary buys your invoices for an upfront payment and then waits until your customer pays. This provides your company with the needed liquidity to operate and expand. The factoring company charges a small fee for this service.

Invoice factoring is relatively easy to obtain and can be setup fairly quickly – usually in a week or two. The most important qualification requirement is the credit quality of your customers – factoring companies can only finance your invoices to credit worthy customers. Aside from that, your company need to be free of liens and legal encumbrances. Invoice factoring an ideal solution for companies that need emergency financing due to cash flow problems.

Having cash flow problems is one of the biggest reasons why many growing companies run into problems. For many, these problems start because they give their customer up to 60 days to pay their invoices. This common practice forces companies to use their own resources to cover expenses while waiting for customers to pay. This can lead to problems when the company runs low on cash or when customers start taking longer to pay. At the very least, it will prevent growth. At its worst and if not managed properly, it can put your company out of business. There are two ways to solve this problem without using a business loan. One way is to give your customers an incentive to pay quickly. A common practice is to offer then a 2% discount if they pay in 10 days. The problem with this strategy is that you are still ultimately at the mercy of your customers. The second alternative is to use an invoice factoring facility, a tool that allows you to obtain quick payments from your creditworthy customers.

Factoring accelerates your customer payments by using a financial intermediary, called a factoring company, that buys your invoices at a small discount and pays you upfront for them. This eliminates the problem of having to wait for customer payments and strengthens your cash flow. When managed properly, you can use factoring as a platform to grow your company without incurring in conventional debt. An important feature of factoring is that most transactions are structured as invoice purchases rather than as business loans.

The factoring company’s fee, commonly referred to as a discount, varies and it’s based on the size of your invoices, your sales volume and the credit quality of your invoices. As a matter of fact, the credit quality of your invoices is the most important criteria for qualification. This enables small companies, whose biggest asset is a list of strong clients, to use factoring to their advantage.

Businesses owners, on the other hand, have their own problems because cash flow is tight. Customers that used to pay in 15 or 30 days are now taking up to 60 days to pays their invoices. However, small businesses still have to pay employees and vendors on a timely basis. This creates problems, forcing managers to juggle payments between vendors. To complicate matters, many small businesses are turning away new orders simply because they are unsure if their cash flow will allow them to service the client properly. This create a vicious cycle that puts business owners in a catch 22.

There is one way to break this vicious cycle, and that is to use business financing to strengthen the company’s cash flow, enabling the business to take on new orders and grow. And since few institutions are offering financing, the only option is to use alternative financing. One product that has been gaining traction in the past few years is invoice factoring.

Invoice factoring is designed to solve cash flow problems that are created by slow paying customers. It accelerates the receipt of cash, providing the liquidity you need to cover current business expenses and grow the business. By eliminating the conventional net 60 day wait for payment, your company is able to make business decisions based on the potential of a customer, rather than their payment habits.

Factoring works by using a financial intermediary between your company and your customer. The intermediary, called a factoring company, buys your invoices and pays for them by advancing funds to your company. This provides your company with the needed liquidity to operate and grow. The transaction is then settled once your customer pays the invoice in full, usually 30 to 60 days later.

As opposed to other forms of financing, accounts receivable factoring is widely available and relatively easy to obtain. This two biggest requirements are to work with credit worthy customers and to be free of major problems, like liens and judgments. Customer credit worthiness is particularly important because the whole premise of factoring involves leveraging your customers commercial credit to your own advantage. This makes invoice factoring an ideal solution for small and midsized companies whose biggest challenge is that they can’t afford to wait 60 days for their customers to pay.

Most cash flow emergencies happen due to the difference in timing between income and expenses. Often, expenses happen first. Income then follows. Due to this, companies need to have a cash reserve to handle expenses. However, business owners sometimes overextend themselves and get into trouble.

For example, most companies sell their products/services to other businesses on credit because large clients demand it. So companies give their client 30, 40 or 60 days to pay their invoices. However, the company itself must still meet its obligations while it waits to get paid. It has to pay suppliers. It has to pay rent. And most importantly, it must meet payroll. Sooner or later, the company may face an unexpected expense and run into trouble. It won’t be able to wait until an invoice gets paid. That is when the problems start.

Asking clients to pay sooner seldom works. Few, if any, will agree. Most clients pay their invoices in 30 to 60 days because that is how they keep their own cash flow healthy. An alternative is to look for business financing. Most business owners will focus on trying to get a business loan. The problem is that business loans are hard to get – especially if the business is in trouble. The lending institution will usually need to see audited financial statements, strong assets and excellent growth prospects. Few companies with cash flow problems meet this criteria.

A better alternative may be invoice financing. Invoice financing is specifically designed to strengthen cash flow by providing interim financing until invoices are paid. It provides the financing quickly, usually a few days after invoicing, enabling you to cover your operating expenses.

One important advantage of invoice financing is that the financing company uses the commercial credit of your client (who is paying the invoice) as part of their decision process. This makes it a viable solution for companies whose major strength is that they work with creditworthy clients. Additionally, most invoice financing lines can be setup in around a week, making it an ideal situation for companies that need funding quickly to cover an emergency.

One of the biggest reasons companies need funding is because they have cash flow problems. These can stem from lowered sales and slow paying clients. As a matter of fact, slow paying clients represent a major challenge for business owners. Accustomed to paying invoices in 30 to 60 days, it’s hard to ask clients to pay invoices faster. Especially when they can take their business to competitors elsewhere at any time.

If your biggest challenge is that you can’t afford to wait for your clients to pay, and your business is otherwise doing well, invoice financing may be the right solution for you. When used correctly, invoice financing can provide the needed funding to help your business.

To use invoice financing you need to work with a funding company that acts as an financial intermediary between your client and your business. Once you invoice your client, you sell the invoice to the funding company, who pays for it immediately. This gives you the funds you need to pay expenses and grow the business. The invoice financing company, who now holds the invoice, settles the transaction once your client pays in full.

One major advantage of invoice financing is that the funding company main interest is in buying quality invoices. That means that clients with few assets other than invoices from solid clients can usually qualify for this type of funding. Also, the funding is tied to your sales, and therefore is dynamic. It will grow with your sales volume.

Invoice financing is a solution that works well for companies whose main problem is that they can’t afford to wait up to 60 days to get paid by clients.

Without venture capital, many business owners try to finance their companies by looking for a business loan from a lending institution. However, business loans are only given to companies that have strong collateral and can show profitable operations. Companies will also need to provide financial statements that will be rigorously reviewed to ensure that they meet institutional criteria. Because of this, this type of business financing is out of the reach of many business owners, especially at this time.

There is are alternative ways to finance your company. They can help you expand your company organically without generating any new debt. And more importantly, without having to give any equity in the business to someone else. Remember that when you use venture funding, you are selling a piece of your company to someone else. They will want a say on how things are done. Many times this is good, since venture capitalists usually have seasoned executives that can help you. However, it will take some of your independence away.

There are two alternatives that can help you, depending on your situation and line of business. One if factoring financing. Factoring bridges the 30 to 60 day gap between invoicing a commercial customer and actually receiving a payment. This advance payment enhances your cash flow, providing you with funds to pay current expenses and grow the business. The other alternative is to use purchase order financing. PO Financing only helps product resellers who have a large order and don’t have the funds to buy the product from their supplier. In both factoring and purchase order financing, the transaction is settled once the customer pays the invoice. And as opposed to other types of financing, the most important collateral if your customers credit rating. Thus, you can leverage your clients credit rating to fund operation expenses and growth. This makes factoring and purchase order financing an ideal solution for many businesses.

Everyone agrees that having the right capital structure with the right sources of financing is critical for the success of a company. The problem is that few institutions are willing to make a business loan or offer any type of business financing to small companies. Large institutions don’t like to lend to small businesses because they find them risky. In part they are right, small businesses have a high failure rate. On the other hand, a small business has a very low chance of succeeding unless they find appropriate funding.

Most business owners will try conventional sources of financing at first. And some will actually succeed in getting business loans or similar financing from their local institutions. But like all small business owners, they will need to show an established track record of success and will need to have substantial assets to back up the financing request. However, if conventional sources fail, few business owners know where else to go for financing.

One possible alternative is to use invoice factoring. One common challenge for small companies is working with commercial and government clients that pay in 30 to 60 days. This practice of offering terms usually ends up tying the company’s capital, restricting their ability to pay vendors or employees. This also restricts their ability to pursue new clients, since they lack the capital to service those accounts. Factoring invoices eliminates this problem by advancing you funds against your invoices. Instead of waiting for your client to pay – you can have the factoring company advance you the funds (less a discount). These funds can be used to pay existing obligations or be invested in new projects or clients.

A major advantage of a using accounts receivable factoring is that most company owners can obtain it relatively easily. To qualify, companies need to have a solid roster of commercial or government customers. Companies also need to be free of major issues – or if they have problems – they need to have a turnaround plan in place.

The reason accounts receivable factoring is easier to obtain than other sources of financing is that they look at your invoices from customers as their main collateral. This allows companies that have a solid base of clients to use that as leverage to fund operations and growth.

Most company owners look for business financing – hoping to implement a stop gap solution to the working capital problem. Unfortunately, getting a business loan is very hard for companies that are not in pristine financial condition. The catch 22 is that if the company where in pristine financial condition, it would probably not need a business loan. Most of time times, this situation can be fixed with the right financing. Otherwise, the company risks going out of business.

There is a solution that can help companies who face slow paying clients and who are not in the best financial shape. It solves this particular problem at its source – the slow client payments. The solution is called invoice factoring.

Factoring provides you with a funding advance for your slow paying invoices. It provides you the capital you need to pay suppliers, vendors and employees – on time. The fact is that while your clients are paying invoices more slowly, most of them are still good solid clients. Factoring companies can provide you an advance on your invoices because they consider them to be your best collateral – something most institutional lenders don’t always do. Because of this, invoice factoring can be a good solution for a troubled company that still has a solid roster of clients.

Another advantage of factoring is that is a dynamic form of financing that grows with your business. Since financing is tied to your invoices, it can be used to grow your business and restore its financial health.

Getting a business loan, or any type of business financing, has been a challenge in the current economic client. Institutions are not lending, either because they lack the funds themselves or because they don’t trust their client’s collateral. Institutions themselves must also follow tough guidelines regarding what they can finance or not. Does that mean that you are out of options? Not really, it just means that you need to know where to look.

One business financing option that has been overlooked in the past few years is invoice factoring. Invoice factoring is a bit different than other forms of financing. It helps companies that have commercial or government clients and that have to wait 30 to 60 days to get paid for their invoices. While many companies can afford to wait to get paid, few realize the true cost of waiting, also called the opportunity cost.

Factoring invoices provides working capital, using the soon-to-be-paid invoices as collateral. Invoices from large or medium sized companies tend to be good collateral that can be financed, and that is where factoring comes in.

What makes factoring financing appealing to companies is that is relatively easy to obtain. The most important requirement is that you do business with solid customers. This product is usually offered by private finance companies called factoring companies, though some banks offer it as well.

Factoring is a tool that can be used to grow your business when other types of financing are hard to obtain or out of reach. It has the added advantage that it grows with your sales, providing your company with a dynamic form of financing.

Some businesses may be able to use accounts receivable factoring to fund their growth. One of the biggest challenges for companies that have commercial sales is having to wait 30 to 60 days to get paid. This also applies to government contractors and suppliers who must also wait to get paid. Many companies would not need a business loan or venture capital to finance their growth, if their clients paid quickly. You can achieve this using accounts receivable factoring. This form of financing has a number of advantages over other forms of financing. By factoring receivables you can get working capital for your company without while minimizing the problems – and hassles – of waiting 30 to 60 days to get paid.

Getting a receivables factoring financing line is fairly simple, since the main qualification criteria is that you do business with credit worthy clients. But more importantly, accounts receivable factoring is dynamic, and grows (almost automatically) with your sales. This makes it an ideal solution for companies that are growing and have solid prospect – but are having challenges finding a financial partner to back their business.