Wednesday, September 26, 2012

Businesses Reduce Risk Via Factoring

Small to medium-sized businesses (SMEs) continue to face challenges compared to larger businesses. SMEs typically account for half of private sector non-farm employment in the United States. During the period from 1993 to 2010, 98 percent had less than 100 employees, while more than half of these SMEs had one to four employees.

Fast forward to now, the smallest firms have had the largest proportionate job losses between Q1 2007 and Q1 2011. According the Federal Reserve Senior Loan Officer Opinion Survey, during this same recessionary period, bank financing fell, and has still has not returned to levels prior to the recession. In 2010, credit standards for large firms actually eased at a faster rate than for small businesses.

SMEs struggle with having enough liquid capital, and even when they are not struggling with paying the expenses necessary to operate their business, they have very little flexibility. This is especially true when customers do not pay invoices on time, which will put your any business at risk.

Today, many SMEs have discovered the secret of accounts receivable financing, which simply is a way by which your outstanding invoices are sold to a third party factoring company. Invoice factoring isn't a loan. Applying for and obtaining bank loans can take an extensive amount of time, often with little payoff. When your business hangs on the line, a delay can make things go awry. In contrast, accounts receivables financing means that the factoring company will take over those outstanding invoices, giving you the cash in advance. Benefits of factoring receivables include the fact that instead of examining your credit, a factoring company typically makes its decision based on the credit-worthiness of the debtors. Then it is much easier for small businesses with few assets and little credit. In fact, most SMEs are surprised at the ease of this entire process.

A factoring company also won't require you to submit tax documents. If you have experience obtaining bank loans, factoring is a breeze. The financing of accounts receivables helps reduce risk because the transfer of these invoices then makes them the property of the factoring company, so passing this risk off can be a huge weight lifted. In essence, accounts receivables factoring benefits small businesses most because it improves cash flow.

No one needs the stress associated with a failing business, and investing time into your business is critical to success, growth and prosperity. If you have unpaid invoices, you will likely have to invest some time into getting them paid. And since time is valuable when you are putting in long hours for your business, why not take the first step towards liquidity.

Kristin Gabriel is a writer for The Interface Financial Group (IFG), a factoring services company providing short-term financial resources. IFG is experienced in factoring finance, banking, law, and marketing. Visit IFG at

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