Bay View Funding Blog

Small businesses need to be funded, and it appears that the options for funding are opening up. Let’s consider the small business loan option, and what you will need to provide to your lender when applying.

An article in SBA News very clearly sets out what needs to be addressed when your company decides to apply for a business loan. The most common forms of small business financing can be found through a bank or a government agency such as the Small Business Administration (SBA). The most important requirement is that your company must be financially able to cover any obligations despite any hiccups along the way. It is vital to maintain good credit standing and excellent business relationships with both customers and vendors

Poor cash flow management; it is the Achilles heel for many small businesses. It is always hard when your customers pay late, but if you effectively manage your cash flow, late payment shouldn’t mean disaster. It pays to be prepared!

Let’s face it; there is a lot to think about when starting a new business. It is common business practice to take on long, and short-term debt to help finance operating expenses, especially as you start out and as you begin to grow. This debt needs to be managed and utilized in a way that will encourage success, not bog you down in the debt mire. It certainly feels great when you realize your company has grown enough that you can balance your accounts payable with your accounts receivable. But then it is time to grow again and this is when cash flow management becomes even more critical.

Worried about timely payment of your accounts receivable? Never underestimate the importance of a reminder letter. Try the ‘I want to help’ approach before considering a collection agency. One of the biggest headaches for any small business is the payment collection challenge.

If you have planned and worked out which customers are good credit risks, and have offered them payment terms, you may then be concerned about further late payment. So you want to employ the most effective tactics to encourage on-time payment. Are you prepared to ask your customers to pay their bills, or do you leave it until payment is late and decide on an approach then? Payment reminder letters are always helpful as a tactic prior to any form of late payment.

We love explaining the benefits of accounts receivable financing, and how it is an effective tool for all sizes of business, but there are other tools worth considering. Another way to help start-up businesses in their infancy is the use of a credit card. A recent ‘how-to’ guide in the online edition of the Wall Street Journal, discussed how to pick a credit card for your business.

When a line of credit from the bank is not yet forthcoming, and those first few invoices are not yet large enough for you to qualify for invoice factoring, a credit card may be the answer as a stopgap measure. This also establishes initial credit in the business’s name.

Why do we talk about cash flow so much? Because successful business is ultimately all about cash flow. It is always good to revisit the benefits of invoice factoring when it comes to cash flow management.

Just to clarify the role of a factor for those of you new to our blog, or to the process of factoring: Companies that are either struggling with cash flow or slow-paying customers can sell their invoices or accounts receivable to a factor. The factor advances the vast majority of the invoice amount, usually between 70 to 90%, once the credit-worthiness of the billed customer is checked. When the invoice is paid, the factor remits the balance, minus a small factoring fee.

So it is immediately apparent how factoring can help cash flow. Not having to wait 30-90 days for payment on outstanding invoices gives a company the ability to utilize that money immediately to pay bills or grow.

Collection agencies can play a valuable role in accounts receivable management. The rules of engagement are not always clearly explained. Here are a few tips about when to use a collection agency, and how to go about picking the right one.

Does your company struggle to collect on payments from customers? Have you noticed a continuing slow payment trend? This could be because you have extended credit to the wrong customers.

Offering credit, or terms is certainly valuable. It can help your customers manage their cash flow, which could be the incentive they need to choose you for goods or services. Many of your competitors are more than likely extending credit to their customers, and it is important to keep up with your competition. But you do need to understand the limitations for your company before you decide.

• Do you have a grip on your profit margins?
• How much credit you can afford to offer to your customers?
• Do you frequently track all outstanding transactions and their value?
• Do you effectively project your cash flow?

Managing cash flow can be extremely challenging for a small to medium business, and we have discussed many times in previous blogs some of the best ways to manage cash flow. Collecting on delinquent invoices from customers to whom you have extended credit is not fun, so let’s review a few tips to make it easier.