June 26th, 2009 | 
Author: 
Kristin Gabriel asked:
The future of many small businesses could be in jeopardy because their managers are failing to adopt basic business practices. And when it comes to financial business practices, the basics include accounts receivable factoring. Factoring is when a financial institution or factor purchases a company’s outstanding accounts receivables or invoices at a discount, and then gives that company quick access to cash, sometimes in as little as 24 hours. Invoice factoring has been gaining in popularity over the last century, and especially in the last couple of years when loans and credit became difficult for SMEs to obtain.
According to the U.S. Census Bureau, three quarters of the U.S. business firms have no payroll. Most businesses are self-employed people operating unincorporated businesses. Non-employers account for only about 3.4 percent of business receipts, they are not included in most business statistics such as the Economic Census. Since 1997 non-employers have grown faster than employer firms.
Most companies need to go way beyond traditional accounting Creating value is rooted in finance and not just accounting. According to research from the Pew Foundation, 70 percent of the value of a business is not reflected in a set of financial statements. Invoice factoring can help businesses better manage cash flow as well, especially when it comes to their slow-paying clients. A number of companies simply don’t want to have a credit department, so invoice factoring becomes their method of choice.
The basic foundation behind a company’s account receivables is its policies and procedures for sales. For instance, do you have a credit policy? How are your customers evaluated for credit? You need to establish sales terms. For example, is it beneficial to offer discounts to speed-up cash collections? What is the industry standard for sales terms?
Small businesses also need systems in place to track their accounts receivables and it should include balance forwards, a list of all open invoices, and at least a generation of monthly statements to customers. An aging of receivables will be used to collect overdue accounts.
It is essential to quickly act and collect overdue accounts. You could start by emailing or making phone calls followed by letters to upper-level managers for the client. Always negotiate settlement payments, including installments, and if these collection efforts fail, you may need to hire a collection agency.
Almost every small business faces the same essential resource allocation challenge: Allocating limited resources to optimize economic returns and to best meet business objectives.
Invoice factoring is done by most, if not all, national banks who act as factors for businesses. It is asset-based commercial lending.” Financial lenders and the factoring companies that exist now realized that while big companies may be late with payments, most of them are going to pay eventually. A small business may not be able to afford to wait around while Wal-Mart or Macy’s gets around to sending out that invoice, but a bank can — and if it takes too long for that invoice to come around, they’ll remind them.
Discounting Receivables
The future of many small businesses could be in jeopardy because their managers are failing to adopt basic business practices. And when it comes to financial business practices, the basics include accounts receivable factoring. Factoring is when a financial institution or factor purchases a company’s outstanding accounts receivables or invoices at a discount, and then gives that company quick access to cash, sometimes in as little as 24 hours. Invoice factoring has been gaining in popularity over the last century, and especially in the last couple of years when loans and credit became difficult for SMEs to obtain.
According to the U.S. Census Bureau, three quarters of the U.S. business firms have no payroll. Most businesses are self-employed people operating unincorporated businesses. Non-employers account for only about 3.4 percent of business receipts, they are not included in most business statistics such as the Economic Census. Since 1997 non-employers have grown faster than employer firms.
Most companies need to go way beyond traditional accounting Creating value is rooted in finance and not just accounting. According to research from the Pew Foundation, 70 percent of the value of a business is not reflected in a set of financial statements. Invoice factoring can help businesses better manage cash flow as well, especially when it comes to their slow-paying clients. A number of companies simply don’t want to have a credit department, so invoice factoring becomes their method of choice.
The basic foundation behind a company’s account receivables is its policies and procedures for sales. For instance, do you have a credit policy? How are your customers evaluated for credit? You need to establish sales terms. For example, is it beneficial to offer discounts to speed-up cash collections? What is the industry standard for sales terms?
Small businesses also need systems in place to track their accounts receivables and it should include balance forwards, a list of all open invoices, and at least a generation of monthly statements to customers. An aging of receivables will be used to collect overdue accounts.
It is essential to quickly act and collect overdue accounts. You could start by emailing or making phone calls followed by letters to upper-level managers for the client. Always negotiate settlement payments, including installments, and if these collection efforts fail, you may need to hire a collection agency.
Almost every small business faces the same essential resource allocation challenge: Allocating limited resources to optimize economic returns and to best meet business objectives.
Invoice factoring is done by most, if not all, national banks who act as factors for businesses. It is asset-based commercial lending.” Financial lenders and the factoring companies that exist now realized that while big companies may be late with payments, most of them are going to pay eventually. A small business may not be able to afford to wait around while Wal-Mart or Macy’s gets around to sending out that invoice, but a bank can — and if it takes too long for that invoice to come around, they’ll remind them.
Discounting Receivables
About Wade Henderson
Wade Henderson: Domestic and International Business Finance since 1995 specializing in challenge situations. "We prefer to find a way to get your loan done as opposed to finding a reason to turn it down.” Connect with me on Google+
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