Downtown Magazine

Ideas and innovations for business and internet users, focusing on high-tech and social trends.

Tuesday, May 12, 2009

Tight Credit? Try Factoring

People go into business for all kinds of reasons, and many of them get quite an education once they've begun the process, learning everything from employee relations to budgeting to crisis management literally on the fly.

Some become successful entrepreneurs, like the Steve Jobs and Bill Gates of our generation, while others succumb to the overwhelming pressure of being one's own boss and knuckle under, going back into the workforce.

The primary reason for small business failure is almost always either lack of sufficient start-up capital or lack of credit for continuing operations or expansion. In times like these, in which access to credit is key and very difficult to obtain, factoring accounts receivable remains one of the most underused and misunderstood mechanisms for maintaining cash flow and stability during stressful periods.

Smart companies have been employing factoring for many years. Essentially, factoring companies provide up-front capital against verifiable accounts receivable. This is especially effective for samll companies dealing as a supplier or vendor to larger firms, which often dictate terms of payment, usually net-30 or or net-60, causing, unwittingly, the small company to suffer a cash crush.

Factoring relieves the cash flow dilemma by providing financing against already completed, but unpaid, projects, and if used wisely, can save a business from failure or help one expand quicker than competitors.

Labels: ,