Have you found yourself in a pickle and just realized that you need cash today for a business operating expense such as payroll or an inventory purchase?  Or, is there a great deal to be made with a vendor to save your company money, if you are able to pay the vendor in the next week or so?  

These are the kinds of situations that require you to have funding options when it comes to financing a business. Entrepreneurs always need a plan B because, let’s face it, challenges or opportunities regularly come up and those business owners that adapt quickly and implement their plan B are the ones that ultimately succeed.

So, how can you get extra cash for your business in a pinch?  I’ve found the two fastest ways to get cash for your business are:

• Invoice factoring 

• Friends and family loan

What is Factoring?

Unless your business operates on COD (cash on delivery) or you get a pre-payment/deposit from your customers, the standard operating procedure is that you deliver a service or ship goods to your customers and then you wait, sometimes as long as 60-90 days to get paid. While you’re waiting, you have what’s called accounts receivable. This is actually an asset on your company balance sheet. The problem is, it’s not the asset you want -- you want the cash! So, you need to convert one asset (the accounts receivable) into another asset (cash) and that’s exactly what factoring is. 

A factoring company:

• Purchases your current accounts receivable

• Advances you cash (typically 80% of the invoice amount) immediately after the purchase of the invoice

• Mails invoices out to your customers (which saves you postage costs)

• Can help with collection of past due accounts

• Sends you the cash rebate after your customer pays the invoice (the amount paid is the gross invoice amount less the initial cash advance to you, less the factoring company’s fees)

• Provides you reporting tools to help manage your outstanding accounts receivable

What Is a Friends and Family Loan?

A friends and family loan is just what it sounds like: typically a short-term loan provided to you or your company from someone you know very well. These loans can be of any size. However, you should be wary of borrowing money just on a handshake.  Take the time to hire an attorney to draw up a simple set of loan documents. There are many reasons to take this formal step including:

• You never know what happens. What if you pass away suddenly before the loan is paid off? You want to be sure your friend and/or family member has a clear right to be paid back from your business.

• Clearly documenting the economic terms for financing a business protects both parties. Items to be addressed are typically:

• Loan terms such as interest rate, security (secured vs. unsecured), repayment period (often called the term of the loan), whether personal guarantees are involved.

• The cost of formally hiring an attorney to do this work definitely offsets all the risks of just operating on a “handshake.” An attorney that is well versed in lending practices brings up many questions that are worthy of discussion between you and your friend and/or family member.

 Fast A/R Funding specializes in helping small businesses bridge the cash flow gap with factoring. Download our informative “Factoring 101” guide, or call 888.833.2286 to speak with one of our small business finance consultants.