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Article: How To Finance Your Growing Business

Do you own a growing company that needs business financing? If you are like most business owners, whenever your business needs money, you talk to a lending officer at your local bank.

But as many owners soon find out, most banks do not lend money to small companies, unless they can provide significant collateral and show a long track record of success. These requirements can pose a major problem for owners who need immediate financing, especially if the company is new but growing quickly.

Alternative financing options

If banks are not an option, consider alternative financing. At the very least, you can use it to solve the immediate problem and to improve your company’s track record.

Although the financing options that we present in this article fall under the alternative financing category, they are actually used widely in the industry. A number of major companies (including many well-known public companies) have used this alternative financing at one time or another during their growth history. It’s common to use alternative financing as a stepping-stone to qualifying for conventional funding.

General invoice factoring

Invoice factoring is ideal for companies who extend payment terms but cannot afford to wait up to 60 days to get paid. Invoice factoring works by enabling you to sell your invoices from commercially creditworthy customers to a financing company, who provides immediate funding. The finance company waits for your customers to pay, at which point the transaction is settled.

The most important advantage of financing your invoices is that the factoring company makes its funding decision using the credit of the invoice payer, rather than your credit.

If your company sells products or services to a large creditworthy company, you are likely to benefit from invoice factoring. An additional benefit of this program is that, unlike some lines of credit, invoice factoring does not set an arbitrary usage limit on your account.

The facility size is determined by how much you sell to creditworthy clients and by how you manage your business. General factors can work with most industries, although there are two main industry subspecialties: transportation factoring and medical receivables financing.

You can learn more by reading “What is invoice factoring?

Transportation company factoring

Trucking companies and freight brokerages tend to be cash-hungry businesses. The owners need money to pay their drivers, purchase fuel, and pay for repairs. However, most trucking companies also work with shippers that do not offer quick-pays. Just as with general invoice factoring, the finance company buys the freight invoices from the trucking company for immediate cash.

Medical receivables factoring

Companies in the healthcare industry, such as hospitals, supply companies, and medical offices, make the bulk of their earnings by billing third-party medical insurance plans – Medicare and Medicaid.

The problem is that many insurance plans are notorious for paying claims in 30, 60, or even 90 days. This delay can create a serious liquidity problem for the medical office, which often has immediate expenses. Fortunately, those receivables can be financed, which will improve your cash flow. But given the billing complexities of the medical insurance industry, it requires the participation of a funding company with extensive industry experience.

One important difference is that the the medical factoring company provides you with financing based on your net collectables rather than your gross invoices. Your net collectables is the amount of money that the insurance company is expected to pay you – rather than what you actually invoice.

They  also need to be included in the insurance billing process, which helps them understand your cash flow. Due to its complexity, medical receivables financing is only accessible to medical businesses billing at least $50,000 a month.

Purchase Order Funding

Most distributors and import/export companies tend to have very bumpy cash flows, in part because of how their specific sales process works.

The sales process starts when the distributor gets a purchase order (PO) from a client. They then purchase the items from their supplier, who ships the goods. This process works well as long as the company has enough money to pay the suppliers or as long as suppliers are willing to offer generous terms.

The problems start when your client also takes a long time to pay or when you get an order that exceeds your supplier credit terms.

In these instances, the company should consider purchase order funding financing. With this solution, a finance company handles your supplier payments using the purchase order from your client as collateral.

Once the client pays for the product, the transaction is settled and all parties are paid. This product can be used to grow your company – exponentially – as long as your transactions have good profit margins and as long as your suppliers/clients have good financial profiles.

Do you want a quote?

We are a leading provider of factoring and purchase order financing to all industries. For more information, please get an instant quote. Alternatively,call us at (877) 300 3258 to speak with an expert.

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