On October 2, 2012 TD Bank released a study of 400 small businesses with annual sales of less than five million dollars across the Eastern United States. What they found was that stress for small business owners is on the rise, and managing their business finances is the biggest single cause.
The Top Stressors of Owning a Business
Managing finances (33%)
Managing employees (20%)
Customer/client relations (17%)
Working long hours (11%)
More than 45% of the companies polled are spending more time managing the cash flow of their business than they would like. In addition, many small businesses surveyed are also stressed about the lack of support from their existing finance company, or bank.
Worrying About Making Payroll Can Take Over Your Life
Having financed hundreds of small businesses over my career, I know that most small business owners learn to live with a certain amount of stress regarding the finances of their business. When it becomes unmanageable is when they are worried about financing payroll. If an entrepreneur is worried about how she will be able to pay all the people that depend on her for their livelihood, it is most likely she will not be able to think about anything else.
Sadly, in a lot of cases this issue avoidable. With the growth of alternative financing for small business over the past decade, there are new options available to small business that help reduce the amount of stress on small business owners. One of the fastest growing financial products available to small businesses to help with payroll financing is factoring.
Help With Payroll Financing for B2B Companies
Factoring companies provide additional cash flow that allows entrepreneurs to get back to running their businesses knowing that payroll financing is no longer an issue. The largest assets of most small B2B companies are their open invoices, or accounts receivable.
The process of factoring is relatively simple. Instead of billing your customers as you normally do, invoices are transferred to a factoring company that pays cash today for the current value of those invoices instead of waiting for your customers to pay. The result is that you no longer have to worry about timing payroll, or other expenses based on when your customer’s next payment is coming.
In addition to cash for your invoices, factoring companies provide other services like:
Outsourced customer credit analysis, to help reduce bad debts
Professional collection procedures to decrease disputes and slow pay
Online invoice databases where all your accounts receivable information is stored safely off-site.
Help With Payroll Financing for Retailers
Because factoring is best suited for B2B companies, an alternative for retailers is what is commonly known as a merchant cash advance. A merchant cash advance is a one-time payment to a retailer that is structured as a term loan. The loan is repaid through the transfer of an agreed-upon percentage of the retailer’s daily credit/debit card receipts.
Merchant cash advances have several advantages over a traditional bank loan:
Payments to the finance company can be structured in such a way that they change with the seasonality of the retailer allowing them more flexibility in managing cash flow.
Qualifying for a merchant cash advance is generally faster and easier than a bank loan. Merchant cash advance companies will focus on the credit card payment history of your firm instead of the underwriting process required by banks.
Fast A/R Funding specializes in helping small businesses bridge the cash flow gap, whether they’re B2B or retail. Download our informative “Factoring 101” guide, or call 888.833.2286 to speak with one of our small business finance consultants.