One of the great advantages of using a receivable factoring company as a source of funds when a business needs cash is that a bank loan comes with a bucket full of requirements.
First, for most small businesses, especially business in a tight cash situation or in dire need, there probably won’t be a bank loan anyway because a) most banks are not lending to small businesses b) even if they are, they are cherry-picking businesses that for the most part, probably don’t even need a loan.
For example, almost all loans come with covenants. That means a bank will outline the amount that can be spent on expenditures or a minimum amount of revenue which must be maintained.
When one of these covenants is violated, the bank has the option to increase the interest rate or even worse, they could have the option to take control of the business.
This can create a nightmare for a small business owner.
How? Because instead of following their long term strategic plan to grow the business, owners are forced to focus on short-term decisions and to follow restrictions to keep the lenders at bay.
That’s a difficult way to run a business.
Can an entrepreneur truly run a business with someone looking over their shoulder who is primarily concerned with you making your monthly loan payment that month on time and not the big picture?
Factoring receivables you don’t have those restrictions.
Factoring companies will come in and buy your receivables and give you cash. At that point, they don’t need to tell you how to run your business. They have already purchased your invoices.
They just need to make sure your top clients pay on time ( and that is why it is incumbent upon them to work with you behind the scenes to make sure the transition goes smoothly and your customers are not affected.)
A receivable factoring company will be sure to keep your situation confidential and try to minimize any actual contact with your customers.
Companies factoring receivables will not tell you how to run your business. But they will be concerned and you should too with your policies to extend credit and how your cash flow is being monitored.
Cash flow is king. That’s why a receivables factoring company will want to make sure invoices are going out on time, going to the right person and are filled with the right information.
That’s account management 101.
The bottom line – if you want to maintain the most control of your business, a business you worked hard to build, be sure to establish a relationship with reliable companies factoring receivables.
They will help your business without getting involved in how to run it.