Now, based on the current economic indicators, it appears as if things will be getting even busier for factoring companies.The Small Business Employment Index recently showed that small business employment is continuing to show growth into 2011. But for them to survive the still tough economy, there are tactics that some small businesses have discovered and are using, including invoice factoring. Factoring enables cash flow, and that is something every small business needs. Interestingly many factoring companies are experiencing an uptake in business, especially over the last couple of months.
Since the downturn, a number of businesses thought they did not have enough cash in reserve to survive. Forbes Insights did a study in association with the Association of Chartered Certified Accountants (ACCS), Certified General Accountants Association of Canada (CGA-Canada) and CNDCEC, the professional body for certified accountants in Italy interviewing more than 1,750 small and medium sized enterprises (SMEs). 30 percent of the sample were in micro businesses employing less than 10 employees. This study showed that most small to medium sized businesses, also known as SMEs, believed the worst of the recession is over. Around 31 to 54 percent, in each country, believed that they did not have cash reserves enough to survive another downturn if it were to happen. And this included those businesses that have seen high growth and were less affected by the economic downturn.
If you want to know what a small business can do to better prepare for its future – in addition to cutting operating costs and employees, depleting inventory or reducing pay, read on. Many businesses must clean up their credit and financials and make sure that solid accounting systems are in place. Why? Banks won’t lend money when a business has credit problems, or a lack of financial statements. However, factoring can help provide a solution to cash flow problems. It is probably one of the fastest and most efficient means of obtaining cash when needed to cover operational costs or for growth. If there is another downturn small businesses will have an affordable option if they look to a factoring company.
Factoring is the purchase of financial assets, or receivables. Factoring differs from traditional bank loans because witgh a bank loan, two parties are involved, whereas factoring involves three parties. Banks base their decisions on a company’s credit worthiness, whereas factoring is based on the value of the receivables. Also known as accounts receivable factoring, once a factor has approved the debtor, invoice factoring benefits businesses that do not get paid for 30 to 60 or 90 days. Due diligence takes a day or two, then factor advances up to 90 percent against the invoices. Often the turnaround is in less than 48 hours. The best news is that there are many factoring companies out there who don’t expect to buy 100 percent of a company’s receivables.