When looking into the various options to finance your business you need to make sure you understand business loan rates and terms. Many small business owners are familiar with the basics of loans from dealing with their personal finances.

If you’re a small business that has struggled with cash flow because of slow collections on your invoices, you need to consider a factoring program. Factoring is a form of commercial cash flow funding or financing where you sell your company’s accounts receivables to a third party known as a factor.

The initial question in this blog asks, “Is cash flow financing the way to operate?” I really don’t know that there’s a right or wrong answer. Now before you skip over this blog thinking, “my business is in good shape, I really don’t need any sort of financing,” read on a little further.

As a business owner, you’re like the quarterback of a football team. The key to being a great business quarterback is the ability to be nimble and make the best play available. To do that, a business owner always needs access to cash. You have to constantly look down the field and make assessments of what you need to do to achieve your goals before you take action. You always strive to execute the action or play you believe has the highest probability of success. Scan the field constantly looking at your offense, look at your competition’s defense, play after play. In business it’s the same thing. You constantly need to evaluate:

In business, receivables are both a curse and a blessing. A growing accounts receivable balance means that you’re making sales, but receivables are just numbers on paper until you collect the cash.

The Situation

I’ve directly or indirectly participated in the financing of over 35 startup companies in the past dozen or so years and have provided cash flow advice to all of the CEOs of these businesses. Currently, there is a lot of focus on business formation and the need for the first $50,000 to $250,000 in seed funding, or angel financing, as it is commonly referred to in the investment world.

Factoring companies have been a part of the staffing industry for a long time. Factoring and staffing companies work well together because of the nature of the staffing industry. Staffing companies provide a service that is easy for factoring companies to measure and analyze.

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?  

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.