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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.

A Small Business Loan

A small business loan is one of the most treasured commodities in the business world. It is still very hard to get despite the claims and promises of banks, credit unions, and other lending institutions that they want to help American small business to survive and grow. In fact it sometimes seems that banks and other lenders want to see small businesses fail and only support those that survive the battle for customers, revenues, and finances during their first two years.

Getting a small business loan is most difficult during these first two years, when most businesses face a myriad of challenges involved with not only opening their doors, but hiring and training staff and meeting the demands of customers, clients, suppliers and vendors. The main reason that the banks use for not granting many loans during this period is like the same reason that a student can’t get a job coming out of school. They don’t have the experience.

The other major reason behind that first reason is that the banks think that many small businesses are simply too great a risk to offer them a small business loan. On that front they do have a point. The majority of small businesses open and close their doors for good during that first year and from the banks’ perspective they don’t want to risk losing their investment during this period.

But after a small business survives those first two years of struggle the banks are much more accommodating. By then the business not only has experience and has proven its capacity to overcome adversity, it also has a track record of being in business. This will include having a financial statement or income tax return prepared twice as well as a record of how well they have been paying their bills to other businesses, suppliers and vendors.

The banks are able to access this information by doing a business credit check from any one of a number of business credit reporting agencies. They can also access a company’s payment record by reviewing their Paydex Score which is available from business reporting company, Dun and Bradstreet. Whenever there is an application for a small business loan, all lenders will review this information before even looking at the rest of the loan application.

If all the business credit checks and reports come back okay the banks and other lending institutions may look further into the business requesting a small business loan and this often includes a personal financial check on the owners or operators of the company. They may ask for business references to follow up with and they may even ask for a personal guarantee or collateral before granting a small business loan.

Agencies like the Small Business Administration can assist small businesses to obtain a small business loan since almost all of the monies provided to small businesses are guaranteed by them even before the bank loosens up its money strings.

How Lead Generation Can Save Your Online Business

The future of business is the internet. This is true for existing businesses looking to grow and, especially, for new businesses just getting started. In either situation, lead generation can boost your website’s exposure to potential customers. There are a number of things a lead generator can do to expand your business or get a new business successfully off the ground. To begin, lead generation is a process of identifying potential customers for a business’s goods, services or offerings. Internet businesses must have customers to survive and grow. Whether online or offline this same fact is true.

Lead generation can help businesses to obtain new customers and grow their businesses. The lead generator creates lead list and then sells the lists to companies looking for new customers or clients.

Lead generators actually serve a dual purpose. Potential customers are helped in finding the businesses offering the goods and services they are seeking. Businesses are provided potential customers who desire the goods or services they offer.

The new customer is looking for a company that can provide what they want. The customer has expressed their interest in particular goods or services. Accordingly, the business offering these goods or services has a much better chance of making a sales and adding a customer.

The business may subscribe to a lead generator for a fee or simply buy leads as needed. The type of leads can vary based on the specifications of the business requesting leads. The business can specify age range, demographics, gender, income, product or service interests and other factors when requesting leads. This helps put the business’s goods and services in front of the right potential customers.

Prices can range for a few cents to many dollars per lead. Fresher or newer leads are generally more expensive than an older lead because the lead may no longer need or want your goods, services or offers. Highly specified leads are more expensive than generic leads. Other factor like competition among businesses with similar offerings could affect the pricing.

Some businesses get customers for services they do not offer and may sell the leads to a lead generator or to another business under an affiliate agreement.

The lead generators may offer help with creating advertising that will guide more customers to your website. Their services may also include landing page and search engine optimization. Of course, all of these services are for the purpose of connecting businesses with their potential customers.

A good lead generator can provide leads for a business and teach a business how to generate their own leads and attract the right customers to their website.