Invoice Factoring and Accounts Receivable Financing for Small Business

Small Businesses are still suffering from a lack of available capital for expansion, purchase of new equipment and for just making payroll until a client pays.

First a little background. Factoring, or the act of selling invoices at a discount, is a financial product that has been available since the birth of merchant and customers. There are many factors in the world and many focus on specific industries or even segments within industries. Like Temporary Staffing, Trucking, Software Developers, Coders, Oil and Gas services and more.

Accounts Receivable financing, another name for Factoring, requires a small business owner to sell an invoice for an advance against that invoice. The factor will typically provide an advance of between 70-95% of the face value of the invoice depending on a few things. First, the strength of the Account Debtor or the person that owes the small business money, for a service or product. The Account Debtor is typically another business.

The process for starting to factor is much like obtaining a commercial bank loan or home loan, expect that Factors will work with clients who aren’t bankable or able to secure financing from a traditional community bank, credit union, or national bank. A basic application is completed and information is provided for the underwriting of the invoice and client. These documents will usually include the businesses financials, information on the account debtor, a background check, and documents related to the invoice, contracts, purchase order and more.

Once all the documents are gathered the factor will complete its due diligence and underwrite and quote factoring the invoice. The underwriter will also recommend a term for factoring, since you will be putting your future invoices up for security in the event the invoice doesn’t pay, or some other calamity prevents the payment of the factored invoice.

Factoring can be expensive, and it can also be very reasonable. When comparing the cost of financing, merchant advance loans, credit cards, and other typical small business financing, factoring may actually be a bit cheaper. Again the cost to factor is based on the risk and likelihood the invoice will pay the factor. The cost is also determined by the credit, collateral, character of the small business requesting the factoring.

The easiest way to look at factoring is figuring its cost on a monthly basis. It’s not uncommon for a factor to offer very attractive rates or at least advertise them online .35% to5.55% but the reality is those are 10 day rates or something near that. A typical factor will charge between 1.5% for the highest quality factor to over 5% for risky invoices that have a higher risk profile.

Small Business Accounting Explained

Below we give you some tips on how to make small business accounting more bearable for you.

First, you should make a list of all accounting tasks to perform in your business. Once you have your list, small business accounting is less stressful and takes less time. You will only have to perform one or more tasks at regular intervals (daily, weekly, monthly …).

We also recommend that if do not know a lot about small business accounting, learn the basics.

Small business accounting is a specific jargon and all sorts of words and concepts reserved for the experts. Do not be discouraged if you do not understand them all. Get used to the most basic concepts directly related to successfully improving your small business accounting. Ultimately, the goal is that you increase profit. It is the primary goal of any business. Request help from a professional if you want, but do not miss the basic concepts.

In contrast, it is a mistake to become a super fan of small business accounting. The company does not come down to accounting. There are firms and professionals who do this very well. This is not the job of an entrepreneur to be a know-it-all of Management or Accounting.

The third golden advice is to separate your personal finances from your business finances.

It is a bad idea to mix your personal account and your business account. Separate them completely: even if you’re the sole shareholder in the company, even if only your money is put into the pot. This separation enables you to plan, predict, without confusing personal cash and professional cash. This allows a lucid view of the true accounts of the company.

Finally, you must be consistent.

It may be hard to get used to at first but we recommend that once you create an accounting system for you, you should stick to it no matter what. Remember to register everything, forget nothing, and be consistent. If you are not consistent you will start doubting your own system later which will not help you when you want to evaluate your business performance at the end of the year. It is a good idea to meet with your accountant to have him or her verify the information. 

Social Media is Right For Small, Medium and Large Business

There have been an explosion of social media sites appearing online recently, and each one can be used to optimize your business in a variety of different ways. What follows are three methods that should be adopted by your business to enable you to harness the full power of social media within your business.

1. Create a Fan Page For Your Business On Facebook.

Facebook is one of the most promising social media sites when it comes to marketing your products. One good way to use Facebook is to create a fan page on the site; and to use it to draw in potential buyers.

Start by investing some time to create a high quality fan page. This page should include links to your site and a well-written description of what you do, and a brief description of the purpose of your fan page. ( i.e. to provide all of your loyal customers with free information about upcoming product launches, give aways and coupons).

If you don’t yet have enough fans to get the ball rolling, it might make sense to start by giving people an incentive to become a fan. You could do something like this: offer everyone who joins your fan page a 20% discount coupon for one of your products. You could then say something like “If this fan page has over 5000 members by September 1st every fan will get a product for free.

2. Think In Terms Of Social Capital.

When it comes to using any form of social media services to promote your business, it is always a good idea to think in terms of building social capital that will generate flows of returns over a long period of time.

It’s important to understand this because many marketers treat social media sites like pay-per-click (PPC) advertising services. That is they expect to see returns immediately after creating an account on Facebook or twitter.

In reality, using social media sites correctly requires that you build up a large following over a long period of time. You can think of these networks that you are building as a form of capital. Once sufficiently large, you can begin to use it to bring in additional members without actively marketing and additional customers.

3. Using The Twitter Search Engine.

Another approach you can take is to use the twitter search engine to find tweets related your business’s niche. This is an easy way to locate people who are interested in your products or services.

Once you have located some tweets related to your niche, you can follow them back to the source, determine whether the person involved might be interested in your niche, and then invite them to follow you if so.

Initially, a lot of people you add may not opt to follow you, however, over time, if you accumulate 50 new followers a day, you’ll gain momentum. If you make interesting tweets, offer discounts, or tweet vital information, you might get re-tweeted, expanding your reach and possibly bringing in new followers.

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