As the economy slowly recovers, large companies continue to shore up their cash flow constraints by delaying payments to small business suppliers. At the same time, vendors to these same small businesses continue to demand faster payment. The result is putting small businesses out of business.

 This strong-arm tactic by larger companies is squeezing the small supplier’s cash flow. Since small businesses have little bargaining power when dealing with their larger customers, they are often forced to accept more lengthy terms. This problem comes on the heels of another: Vendors (many in a cash-crunch themselves) are demanding prompt if not faster payments. This is creating a vicious cash-flow crunch cycle from customer to supplier to vendor, pushing many small businesses to the breaking point.

Making matters worse, in a credit clampdown that went too far, bank lending to small and mid-sized businesses has continued to dwindle. The SBA’s own data states that from June 2009 to June 2010, the value of outstanding loans to U.S. small businesses plunged $43 billion, a drop of more than 6 percent. This lack of lending has had a devastating impact on small businesses that were already strapped for cash, putting many of them out of business.

As business owners are continuing to struggle with cash flow during this economic recovery, financial relief seems to be scarce. However, Accounts Receivable Factoring is an often overlooked choice to help businesses manage their cash flow. This form of financing (also known as Invoice Factoring) is a financial tool that allows businesses to capitalize on the power of their outstanding Accounts Receivable. Factoring is a valuable mechanism to turn a business’ invoices into immediate cash, enabling them to fund business operations.

Although not widely understood, a factoring firm provides funds to a business based upon its Accounts Receivable. Most invoices billed to credit worthy customers can qualify. Banks, on the other hand, must consider increasingly stringent criteria before qualifying a borrower for any type of funding. In most cases, when considering assisting a business based strictly upon its accounts receivable, factoring companies can provide funds when a commercial bank cannot.

The reason many businesses employ factoring is to ensure the continuous flow of cash to the business without sacrificing equity or incurring debt. Essentially, businesses that use factoring are focusing on having most of the money now rather than all of it later. It can take time to collect an invoice, but when companies factor their accounts receivable, they get their money faster and easily are able to avoid the cash-crunch.

According to The National Bureau of Economic Research (NBER) the Great Recession ended in June 2009, but does that mean “back to business as usual”?

The recession that began in December 2007 and lasted 18 months is the longest and deepest downturn for the U.S. economy since the Great Depression. Fears of a double-dip recession are still alive, especially when unemployment remains high and the housing market continues to be in a slump. Why does there seem to be a huge gap between what the NBER offers and what seems apparent today?

Perhaps this question has already been answered, but no one was listening. Robert Pollin, an economics professor at University of Massachusetts-Amherst states, “The single most important reason for the failure of the recovery to take hold thus far is that private credit markets are locked up, especially for small businesses.” The reality for many small businesses that may have qualified for credit under the old norm is that they do not qualify for credit under the new norm.

We pointed out this paradox in our own August 27th article “$40B in Small Biz Loans Disappears”. How can the recovery be sustained if small businesses cannot access the working capital needed to support renewed growth? Small business is the life-blood of a strong economy. So as long as small business is challenged by access to working capital, then we can expect a challenging economic recovery as well as a hindered job market growth.

It is critical that businesses acquire a funding source that is readily available and dependable. Factoring (also known as Accounts Receivable Financing) is an often overlooked choice for businesses trying to participate in the recovery. This form of financing is not widely known, but allows businesses to capitalize on the power of their outstanding invoices. Factoring can be a valuable mechanism to turn business invoices into immediate cash, enabling them to fund business operations.

Funds obtained from a factoring provider can be used for the same business purposes that one might use cash borrowed from a traditional business lender such as a commercial bank. Instead of incurring debt by borrowing from a traditional lender, business accounts receivable can be converted immediately to cash under a factoring arrangement, essentially, leaving the business debt free. In many cases, under an inter-creditor agreement, a factoring provider can provide funds to a business already indebted to a commercial lender.

Factoring allows the small business owner to retain control of their company and gives them the ability to grow quickly or at a moderate pace. It is all about control and cash flow management. Savvy business owners use the extra cash to take quick-pay discounts from suppliers by paying early. With the right financial strategy, factoring can also provide long term cash flow management, not just a quick fix.

Factoring has become an important small business financial tool in the midst of this uncertain economic environment, as it has proven to be a cost effective alternative for working capital to fuel business growth and to timely pay sensitive cash obligations.

According to bank reports recently submitted to the Federal Financial Institutions Examination Council, in the last two years, $40 billion worth of small business bank loans has disappeared.

At a time when small businesses are struggling with cash flow, access to funding has become more challenging. At the “Addressing the Financial Needs of Small Businesses” forum in July, Federal Reserve Chairman Ben Bernanke explained that a weaker demand for financing from small businesses (who are worried about taking on additional debt during tough economic times) and a dwindling supply of available credit have contributed to the decrease in access to bank financing.

The whole situation puts banks in a precarious position: On the one hand, bank regulators are telling banks to tighten lending standards, while on the other hand banks are being told to increase their small businesses lending. Invariably, if businesses need financing for growth, there are increasingly fewer conventional sources available today. Challenges from slow accounts receivable cycle or recovering from unforeseen circumstances can put a business in a serious cash crunch quickly. Fortunately, there are alternative providers of working capital funds, such as commercial finance companies that specialize in factoring or funding business accounts receivable.

Cash obtained from a factoring provider can be used for the same business purposes that one might use cash borrowed from a traditional business lender such as a commercial bank. As opposed to incurring a debt by borrowing from a traditional lender, ones business accounts receivable can be converted immediately to cash under a factoring arrangement, essentially, leaving the business debt free. In many cases, under an intercreditor agreement, a factoring provider can provide funds to a business already indebted to a commercial lender.

Factoring has become even more prevalently used in the midst of this uncertain financial environment, as it has proven to be a cost effective alternative for working capital to fuel business growth and timely pay sensitive cash obligations.

Cash obtained from factoring invoices can be used as a short term working capital funding source to pay for labor or suppliers in order to deliver products or services.

Given current economic conditions, banks are still less likely open new lines of credit or increase current credit limits due to significantly tighter credit criteria.  What’s more, banks are viewing businesses with significant growth as being at high risk of successfully executing such growth.  Because of this, many small businesses with growth opportunities are not getting loans or lines of credit they need.

Factoring can be a valuable tool to support business growth.  For example: A service business has an opportunity to add a new client that requires adding new employees. The company can receive factored funds upon issuing the invoice and, in turn, use the funds for the payroll used to support the additional business. There are many other examples, but the theme is the same: Cash from factoring is used to pay for labor, materials, or inventory in conjunction with completing delivery and issuing an invoice to the customer.

Ultimately, if businesses need financing for growth, there are not as many opportunities available today. A slow accounts receivable cycle or recovering from unforeseen circumstances can put a business in a cash crunch quickly. There may be many reasons for businesses to consider factoring, especially if traditional bank financing is the least desirable option.

November 19, 2009 – Taking its cue from big bank endorsement of Wal-Mart’s “Supplier Alliance Program”, Charter Capital (a specialized provider of Factoring Services) has positioned itself to fund advances to an even wider range of suppliers challenged by the need to extend ever more generous payment terms to their customers like Wal-Mart, Costco and others.

Due to the increasing demand for business credit combined with the sharp decline in the availability of bank loans and increasingly delayed payment remittance from customers, Charter Capital has become a preferred alternative source of funds to small businesses with immediate working capital needs.

For a nominal discount fee, Charter Capital services the funding needs of a wide variety of small to mid-sized businesses (SMBs). Most SMBs at the heart of the US economic recovery still face significant cash flow challenges that Charter Capital is well prepared to meet.

Factoring is an often overlooked choice for growing businesses. This form of financing (also known as Accounts Receivable Financing) is a financial tool that allows businesses to capitalize on the power of their outstanding invoices. Factoring can be a valuable mechanism to turn a business’ invoices into immediate cash, enabling them to fund business operations.

Small businesses that need an immediate cash stimulus can turn to Charter Capital for an accounts receivable factoring program fits their needs. This factoring company is a direct source of funds and does not involve any third-party lenders.

About Charter Capital

Charter Capital is recognized as one of the hardest working independent providers of accounts receivable financing, invoice factoring and cash flow management solutions for small to mid-sized businesses. They offer a complete line of asset based funding and related financial services. In today’s “credit crunch” economy, Charter Capital can be your alternative source for business financing.

Headquartered in Houston, Texas, Charter Capital provides accounts receivable financing and asset-based lending for major industries including freight and transportation, consulting firms, service providers, staffing firms, distributors and manufacturers, medical service providers.

To learn more about accounts receivable factoring call Charter Capital at 1-877-960-1818 or visit the website at http://www.chartercapitalusa.com.

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Factoring now accounts for more than $1 trillion a year in business funding. That is more than three times what it was in the early 1990s. Since then, factoring companies have become more reputable and service oriented while providing readily available funds to businesses that are challenged with cash flow issues.

Although factoring has not generally been well known in the past (except in a few specific markets like textiles and transportation) it has recently become a sought-after cash flow management tool for the small to midsized business (SMB) market across many industries. This is recently, in a large part, due to big companies slowing their payment to small businesses (see article “Big Companies Are Slowing Supplier Payments”) creating severe cash flow problems for these smaller suppliers.

For those unfamiliar with Factoring, it is the process of a business acquiring cash by selling its accounts receivable (invoices) at a discount to a factoring company. The discount, or cost to the business is equivalent to a prompt pay discount a business might otherwise offer to a customer account . The business receives the cash upfront from the factoring company and the factoring company takes responsibility for processing the receipts under lockbox control. It can take time to collect on an invoice, so when a company factors its accounts receivable, the company essentially gets its funds up front while the factor manages the process of collecting the payment remittances — saving the company time, money and positive cash flow.

Factoring allows the small business owner to retain control of their company and gives them the ability to grow quickly or at a moderate pace. It is all about control and cash flow management. More savvy business owners will work the factoring fee into the product or service provided. Others use the extra cash to take quick-pay discounts from suppliers by paying early. With the right financial strategy, factoring can also provide long term cash flow management, not just a quick fix.

As more and more small businesses discover the benefits of factoring, new industries are warming-up to the idea that there is a readily available source of cash hidden within their accounts receivable. In fact, factoring has become so much a normal part of business financing, that universities are now teaching it in relation to cash flow management.

Related News Articles:

Big Companies Are Slowing Supplier Payments
Economy Recovering – Bank Loans Sill Scarce
The Credit Crunch Is Still On
Finance Growth without a Loan
Improving Cash Flow in Tough Times
Forbes.com Article Endorses Factoring

Return to: Small Business & Factoring News from Charter Capital

In a recent article from the Wall Street Journal, “Big Firms Are Quick To Collect, Slow To Pay”, corporations are attempting to beef-up their collections all while slowing down their accounts payable to 60 days or more. As revenues for large corporations continue to slow in an already weak economy, they are putting the cash flow burden on their suppliers.

Since many of the suppliers of larger companies are small to mid-market businesses, they may carry an additional burden due to the ever dwindling availability of bank loans or lines of credit. Also, small to mid-sized businesses have little bargaining power when dealing with their larger customers and are forced to accept more lengthy terms. This can have a devastating impact on suppliers that are already strapped for cash.

As business owners are already struggling with cash flow in today’s economic environment, financial relief seems to be scarce. However, Accounts Receivable Financing is an often overlooked choice for businesses to manage their cash flow. This form of financing (also known as Factoring), is a financial tool that allows businesses to capitalize on the power of their outstanding invoices. Factoring is a valuable mechanism to turn a business’ invoices into immediate cash, enabling them to fund business operations.

It is not widely understood, but a factoring firm provides funds to its clients based upon its clients’ accounts receivable. Most invoices billed to credit worthy customers can qualify. Banks, on the other hand, must consider more stringent criteria before qualifying a borrower for any type of funding. In most cases, when considering assisting a business based strictly upon its accounts receivable, factoring companies can provide funds when a commercial bank cannot.

With FDIC reserves plunging to $10.4 billion from $45 billion last fall and the number of troubled banks rising to 416 from 305 in the first quarter, more pressure is being put on banks to “shape up”.

Although the economy is showing clear signs of recovery, the banking sector may not rebound any time soon. It’s possible that the continued problems in the banking industry will substantially outlast the recession, resulting in a significantly suppressed availability of credit in a recovering economy.

With many banks struggling to keep their doors open, small business owners seeking financing, who are already finding limited options, are faced with desperate cash flow issues. As businesses attempt to recover along with the economy, they need financing solutions now. It is critical that businesses acquire a funding source that is readily available and dependable.

Accounts Receivable Financing is an often overlooked choice for growing businesses. This form of financing (also known as Factoring), is a financial tool that allows businesses to capitalize on the power of their outstanding invoices. Factoring is a valuable mechanism to turn a business’ invoices into immediate cash, enabling them to fund business operations.

It is not widely understood, but a factoring firm provides funds to its clients based upon its clients’ accounts receivable. Most invoices billed to credit worthy customers can qualify. Banks, on the other hand, must consider more stringent criteria before qualifying a borrower for any type of funding. In most cases, when considering assisting a business based strictly upon its accounts receivable, factoring companies can provide funds when a commercial bank cannot.

In a cruel way, the credit crunch has been pummeling those that are least able to cope with its effects. Small businesses have been hit incredibly hard by the lack of readily available funds from banks in order to stay operational. While many large companies have squeezed their suppliers by paying their invoices later in order to stretch their cash flow, companies providing goods on credit have no come back if the company they are supplying goes under.

Even in a credit crunch economy, there are many ways to maintain a positive cash flow when dealing with Accounts Receivable issues. One increasingly popular way is called Accounts Receivable Financing (also known as Invoice Factoring). This financial tool allows businesses to capitalize on the power of their outstanding invoices. This form of financing is a valuable mechanism to turn accounts receivable into immediate cash, enabling businesses to fund their operations.

It’s not widely known, but most businesses can rise immediate funds for their accounts receivable by simply engaging the factoring services of firms such as Charter Capital. Commercial banks do not consider loans based solely on a borrower’s accounts receivable, but invoice factoring firms mainly consider the accuracy of the accounts receivable when deciding whether or not to fund its clients. In most cases, a factoring provider can provide funds when a commercial bank cannot.

Dealing with an uncertain economy is never easy, especially for small businesses. Unlike their larger counterparts, small businesses rarely have the resources to monitor and take corrective action for every trend and issue. Even those owners who have weathered numerous business cycles may be faced with new circumstances that confound their otherwise successful instincts and knowledge. But a predictable funding source like factoring can certainly ease the pain associated with an uncertain economy.