Most types of business financing are not very friendly towards small businesses for a few reasons. First, banks are often more interested in larger companies which can use multiple products and generate sizable banking fees. Second, because of their size, small businesses often lack the collateral to secure loans or lines of credit. Lastly, most small businesses do not have the formal financial reporting process that many institutional lenders request.
However, many small businesses require some type of financing to grow past their limitations. This requirement puts entrepreneurs, self-employed individuals, and small businesses in a bind: they need financing to grow, but they can’t get financing because they are small.
However, there is a way to solve a common cash flow problem that affects many small business owners. This solution does not have the complex and stringent requirements that financial institutions have.
Do you have this cash flow problem?
If you work with commercial or government clients, you probably have to provide them with payment terms – giving them the option to pay your invoices in up to 60 days. Larger companies pay on terms because it’s good for their cash flow: they get to use your products and services for up to two months before they have to pay. It’s definitely a good deal for them.
The problem is that many small business owners, especially the self-employed and small start-up companies, cannot afford to wait that long for payment. They have immediate needs and require quick payment.
One way to get quick payments from clients
A simple way to get quick payments from clients is to offer a discount for early payments. Discounts vary but usually average 2%. This common strategy often produces good results.
Clients like this option because it increases their profitability by reducing the cost of your services. The problem with this strategy is that it’s not always reliable. Clients can change their minds at any time and pay slowly.
Finance receivables with small business factoring
A better strategy for small business owners is to finance their receivables with a small business factoring plan. This solution provides many of the benefits of quick-paying customers but does not require them to pay sooner. Instead, you finance slow-paying invoices through a factoring company.
Small business factoring provides the working capital your small business needs to operate. You get funds to pay employees, vendors, and other expenses. The transaction concludes once your customer pays the invoice in full, on their agreed schedule. You can learn more about this program by reading this article.
Small business factoring has a number of pros (and few cons) that can help your business. The most important advantage is that it improves your cash flow. You do not need to chase down clients for prompt payments, which lets you focus on what you do best – running your business.
It also allows you to provide payment terms to your clients without having to suffer potential cash shortages. If you have declined business because you could not offer payment terms, this solution can be a game-changer.
Lastly, qualifying for small business factoring is fairly easy. A well-organized small business or self-employed person can qualify as long as:
- Its clients have good commercial credit
- Its invoices have no encumbrances
- The company does not have serious tax problems
These aspects of small business factoring factoring make it an ideal funding source for small companies and self-employed professionals with cash flow problems because of slow-paying clients.
Get a factoring quote
We are a leading provider of small business factoring and can provide you with competitive terms. For more information, get a factoring quote or call us at (877) 300 3258.
If you need more information about financing a small company, please read: