Many big suppliers to small and medium sized enterprises (SME’s) are finding that their ‘debtor days’ are blowing out in today’s challenging market. The SME’s who purchase their materials are taking longer to pay which ultimately hurts the money flow on the supplier as they have more effective utilization of the funds which are tied up of these debtors.

One strategy that the credit teams of these big suppliers are starting to deploy is referring these SME customers to the advantages of invoice factoring companies. Factoring refers back to the sale and purchase of accounts receivable for the purpose of accelerating cash flow. The key reason why big suppliers are using this strategy is because a top reason why a SME debtor is slow in paying is because they have not been paid for a job that they have done. When this job was done for another large company, then the invoice that is generated becomes a valuable asset that can be monetized by financiers who offer factoring.

An SME business can sometimes acquire cash that they can use to pay their account with the big supplier through factoring their invoices. This helps the SME stick to good terms so that they cancarry on and buy materials on credit terms and of course helps the money flow and collections of the big supplier.

Using this strategy is also a way of determining whether a SME debtor is being truthful when they claim that they have not paid their account as a result of slow payment from their customer(s). If the SME has not then followed up by exploring factoring, then this large supplier knows that there may be another reason why they aren’t paying their invoices and can then take the appropriate action according to their credit management strategy.

For credit professionals, an important Key Performance Indicator (KPI) would be to manage your debtor days well. In today’s challenging economic environment, credit professionals need all the tools designed to help reduce these debtor days and improve the cash flow of their companies.

For details about factoring companies, call The Interface Financial Group (IFG) at 1300 957 900.

Raising money for a small business traditionally has been by way of writing a business plan, raise the money after which execute the plan. Scrambling for new alternatives, factoring companies is used by many business owners once their business is up and working because there are several credit restrictions as of today’s tight budget at mainstream banks. In some instances, entrepreneurs could pull together cash from friends and family, then go ahead and start off the business. So think about bootstrapping first, this way, you can actually raise cash quickly and easier, then earn some cash; bare in mind the raising money usually takes more time than you believe. A business that has not raised anything from investors but is producing lots of income, will get investors excited about buying.

Prepare yourself to give up some ownership in your own business if you get investors, therefore the more time you are able to prevent raising the capital from others, the bigger the piece of the pie you will secure.

Nevertheless, once the business is up and working, if you want to never come across the issue of a cash flow crisis, factoring companies has become a well known strategic maneuver. And you shouldn’t receive funds from an angel investor if you are uncertain if you can actually boost it. What’s more, raising funds from investors is often faster once you’ve income since they like the thought of buying a business that is currently generating profit.

Factoring is simply not a loan – it is purchasing of monetary assets, or receivables, plus it is different from conventional bank loans for the reason that bank loans involve two parties, while factoring involves three parties. Banks base their decisions on a company’s credit worthiness, while factoring is based on the value of the receivables. Invoice factoring benefits companies that do not get paid for Thirty, Sixty or 90 days after the factor has accepted the debtor, this is called factoring accounts receivables. Due diligence efforts typically take a day or two, after that factor advances up to 90 percent against the invoices. The turnaround takes 2 days or less oftentimes. Furthermore, few companies expect to buy 100 percent of receivables of a company.

Therefore the final outcome of these types of expenditures is also important to look at. And expenses need to be kept very low. The truth is that many requirements for a new business are in fact, luxuries. These practices often stay with the business owner long after the business is successful.

Making sure that resources aren’t wasted is also a good idea. Employ great caring individuals who actually trust in the business, and employ them according to their skills not price. over time, inexpensive labor ultimately ends up costing much more most of the time.

In the end, if cash flow for your small company remains lean, then by factoring companies, it will be much easier to stay on track when monthly expenses come due. After all, factoring has been in existence for more than 4,000 years.

Given today’s economic condition, many companies will really face cash flow problems in the start-up phase. Others, on the other hand, have issues with cash so they cannot grow their business.

Improving your cash flow in the year 2010 should be a main concern, as well as collection efforts or even getting professional assistance with financial forecasting. But there is one strategy that works every time: accounts receivable factoring.

When these options aren’t sufficient, factoring can help. For any company strapped in cash, selling accounts receivables or invoices to advance funds is a good and reasonable idea. After all, you could always make use of the money now (rather than waiting for 60-90 days) to buy supplies and keep the business running.

Factoring does come with a price, but in the growth stages of a small business, it’s better than a loan. Factoring companies will charge you fees as payment of availing of their services.

Here’s how accounts receivable factoring operates: first, the factor, such as The Interface Financial Group (IFG) will want to examine your invoices and also check the creditworthiness of your customers. Then, you should be ready with these documents: current financial statement, accounts receivable aging report, certificate of incorporation or partnership agreement, proof of insurance, invoices and other relevant business documents.

Because it is the factoring companies that will take on the responsibility of collecting the receivables, they want to protect themselves and ascertain that the invoices will be paid on a timely fashion. Once you know which invoices the factor will purchase, the factor will normally pay you in as little as 24 to 48 hours.

For instance, the factor might pay you 80 percent of the total amount of your invoices and then reimburse you the other 20 percent when your customers pay their invoices. They of course, will subtract their fee.

The price of this type of financial solution ranges anywhere between 3 and 7 percent of the total amount of the invoices. Fees shall of course vary, depending on the size of the invoices, the creditworthiness of the customers, and the number of days in your cycle, to name a few.

Bear in mind,however, that not everyone will benefit from accounts receivable factoring. For one, it is limited to B2B organizations. Second, interest rates are almost always larger than those imposed by traditional bank loans. But, since a large percentage of factored invoices are paid for within 90 days the total amount of interest paid is generally smaller than that of a longer term bank loan.