27. January 2010 by admin.

How do you finance your business growth?

Many entrepreneurs running small- and medium-sized businesses have found that corporate and personal credit cards can be a viable financing tool. They provide the purchasing power for a small business as it finances the gap between selling their products or services and getting paid for them.

Corporate credit cards invariably have higher spending limits than personal credit cards. While this seems to be a good thing, corporate credit card users should note that some card issuers report their corporate credit activity together with their personal activity, thus distorting their personal credit picture. Looking at their personal credit picture might lead one to think that as an individual they are grossly over-extended — not good for the individual or their business.

Another potential credit card ‘trap’ is that it becomes too easy to use the card and run up what quickly becomes permanent debt in the company. The cards get maxed out and the company is left with a solid core of debt to be serviced on a monthly basis. If the business is growing rapidly there will usually be little opportunity to pay down that credit card debt as the ongoing growth requires more working capital to fuel that growth.

An alternative funding approach to consider is invoice discounting (also know as spot-factoring). This funding approach provides the working capital needed when, and as, it is needed. Invoice discounting does not represent a loan, as is the case of a credit card, and is very much ‘off balance sheet’ funding.

The need for additional working capital comes from the delay between issuing invoices and being paid. The invoice discounting approach speeds up the cash flow so that sales essentially become ‘cash on delivery’. This means that a business is utilizing their existing assets in a more productive manner without adding a debt burden to the company.

Growth will always demand more capital — the successful entrepreneur is the one who finds that all-important cash without going into debt or being constrained with burdensome service contracts. Invoice discounting may be the winner over credit cards.

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7. January 2010 by admin.

Factoring is not for everybody.  Like all financing, there are certain situations when factoring works extremely well, and other situations when it doesn’t.  So when is factoring the right choice for a business?  Below are eight benefits of factoring.  If you know of a company that values the following, then factoring may be right for them.

• Speed of Setup and Funding: Unlike most capital resources, the factoring relationship can be set up within days, and once set up the funding of invoice can happen between 24 to 48 hours.
• Different Credit Requirements: Most of the funding decision is based on the credit of the customer, not of the company receiving funds.
• Flexible Credit Limit: As long as the client is invoicing a credit-worthy customer, factoring relationships can grow with the client so there may not be limits to access of capital.
• Borrowing Discipline: Lack of discipline often causes companies to not pay loans regularly down the line. With factoring, there’s no lack of discipline — each time a customer pays the invoice, it retires the mini-loan.
• Preserved Equity: Factoring is considered an off-balance sheet form of financing, preserving the equity position in a positive manner.
• Ease: The process of getting set up requires minimal paperwork and no lengthy negotiations compared to banks and equity venture funding.
• Cost: The cost of factoring invoices is relative to the short-term nature of the transaction, not lasting more than 90 days — more than a bank, but less than a VC. Companies with thin profit margins are not good candidates for factoring to grow their business.
• Ability to Grow: Having access to capital improves the financial position of a growing company. While factoring is a short term solution, it ultimately leads them to conventional bank financing.

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