Ever watch a dog chase a car? After he catches it, he’s not sure what to do. Likewise, many businesses work hard to win the really BIG sale. Once the contract is inked, a new challenge sets upon the business owner: how are we going to get the necessary cash without acquiring debt to hire the personnel, and buy the goods and equipment to deliver this huge order? This otherwise ‘good news’ is cause for a cash flow flu – or terminal disease. Ask those owners who have survived substantial growth in short periods, and they’ll tell you that extra weight and burden of their cash flow needs almost sunk their ship.

Of course, the opposite is also sadly, occurring in this economy: business bankruptcies are at an all-time high. The number one cited reason: lack of capitalization. More accurately, the vagaries of cash flow place a serious roadblock to fiscal health and business survival. Every company has the cash flow flu at some point – but if one is already weak fiscally, a cash flow crunch will cause a pre-mature death of a company. Enter the factor and cash flow consultant.

A Success Story
In east Greensboro, NC there is a company whose sales had grown to about $3 million in 1992. The challenge was that their customer-base was historically slow to pay – 45-90 days. In 1993, the company started “factoring” or taking advantage of accounts receivable funding. By factoring, when an invoice is created, the factor wires most of the payment within 36-48 hours of the invoice submission, with the balance (minus a small service fee, charged DAILY, not monthly) coming when the customer finally paid the invoice. In 1999, the company’s sales had grown to nearly $20 million a year. “If I had not started factoring in 1993, I never could have grown the company six times in six years. It gave me the operating capital to expand, buy more equipment and stay ahead of competitors.”

Some people ask, “Why take a small discount on your future money for cash today?” Minor reasons are inflation (money today is worth more than in the future) and leveraging capital for investment opportunities today. The major reason is the time value of money. Think about it this way: picture yourself standing on a railroad track looking up the tracks to the horizon. The railroad tie you’re standing on is exactly 8.5 feet. How long does the one 100 yards away look? – 1000 yards away? Of course, they’re the same length but it LOOKS LESS. Similarly, money received in the future is worth less than money received today. By factoring, the speed of cash flow allows leverage, and accelerates the potential for business success.

What is Factoring?
Factoring or accounts receivable funding has actually been around for a long time, since the early part of the 20th century. In its simplest form, it works like this: first, you qualify with a funding source or factor which takes about 10-15 days. Factors don’t look at your credit, but the worthiness of your customers. Now, you have just created an invoice for $100,000 issued to a credit worthy customer. Two days after you issue the invoice, 60% - 85% of the face value of the invoice (say, 75% for this example) or $75,000 is wired into your account. The balance or reserve, less an agreed upon amount paid to the factor (3% in this example), or $22,000 is paid to you when the customer finally pays the invoice. Many business owners are not aware of this cash flow tool.

You get the majority of your cash immediately upon issuing a valid invoice. With that cash, companies can get cash discounts on materials, or frankly use it how they see fit. The owner of the company in the example above said, “I figure that we factored for FREE after just a few months.” ~ via cash discounts from his suppliers.

How much efficiently could your business operate if all of your customers paid COD? Whether the goal is survival or growth, learn to take advantage of factoring if it makes sense for you. Best of all, have a “coach” is more than a ‘broker’ but one who takes interest in you and supplies you with industry knowledge and free expertise.

The Broker’s Role
Bringing together the individual or business owner’s need for converting future payments to cash now with choices of funding sources is a refreshing option. “Refreshing” meaning NO DEBT and NO BORROWING financing. Ask any person who has been turned down by a lending institution how it felt, and they thought they had no other options. A cash flow consultant will have multiple factors from which you may choose. “It’s easy to make good decisions when you have no bad options.” One option is to access www.ccfs.biz which is Creative Cash Flow Solutions.

Author's Bio: 

Charlie Breeding is President of Performance Improvement Institute, an Internet Information provider, publisher and professional speaking, coaching, consulting and training firm. He's also a Certified Cash Flow Consultant. Mr. Breeding is a graduate of the US Military Academy, West Point For organizations, more information can be obtained at www.ccfs.biz and for individuals, go to www.breedingtrust.com.