Invoice Factoring Strategies for Small Businesses

There was a recent poll asking successful entrepreneurs what they personally believe affects the success or failure of a startup business today. 549 founders of organizations were gathered as respondents to this survey; the sample is a mixture of people from various industries including computing, electronics, health care and aerospace, among others. The chief most critical success factors included learning from their mistakes and their successes, previous work experience, a good strong management team and good luck. Moreover, 98% of them mentioned the significance of prior work experience. And fascinatingly, a few mentioned a strategy known as invoice factoring.

Some of the usual inquiries on the government's Small Business Administration (SBA) website are: How do I get a small business loan ... or grant? What's the finest way to start a business? How do I look for an investor for my business? What type of interest rate, terms or fees does the SBA require on its Guarantee Loan program?

Following are some real tried and true financial aids that can help any business grow, as small business entrepreneurs head into the year 2010.

The first reason is don't waste money! Have good financial strategies prepared - those that can help reduce operating expenses - and stick to them. Be conscious of your expenditures, ascertain that you're not paying double for anything. You can assess your financial health per quarter - taking the time to review and make adjustments in the expenses. By doing so, you are more inclined to finding areas where you can save on costs. For instance, do you rent or lease a vehicle? If so, be aware that purchasing a company vehicle is better since in can be reflected on your company tax returns and can be depreciated. This way, you'll get a higher return on investment when this vehicle is paid off rather than if you lease it. But think about leasing your company's computers, which is usually a tax deduction, so that you can always trade them in for newer technology when the time comes.

Another great financial strategy is to use invoice factoring for your outstanding invoices. An invoice that will not be paid for 60 to 90 days isn't doing your company any good today. However, if you come across a factoring company to factor one or more of your outstanding invoices, you can use the money wisely to invest in your business and make it grow faster. Several factors nowadays do what is referred to as "single invoice factoring" where they will spot one invoice at a time.

Accounts receivable factoring is particularly helpful if you need cash immediately since once a factor receives your application and reviews your invoices, you can receive payment within as little as 24 to 48 hours after they have pre-qualified the vendor that owes you the money. In this process, your credit history isn't evaluated, but your clients will be - so be certain that they are as creditworthy as they can be.

Just like any financial institution, factoring companies shall charge you with a fee. Be ready because firstly, the factor will examine your invoices and the creditworthiness of your customers. Also, be prepared with these documents because the factor would need these: a current financial statement, an accounts receivable aging report, a certificate of incorporation or partnership agreement, proof of insurance, invoices and other pertinent papers.

You ask why you need to make sure that your customers will pay their invoices in time? Because the factor will be responsible for collecting your receivables. Once you have chosen which invoices the factor will buy, they'll typically pay you an advance; for example, the factor might pay you 80% of the total amount of your invoices and then reimburse you the other 20 percent once your customers pay the invoices.

Factors get anywhere from 3%-7% or more of the total they collect. The variation of the fees collected is dependent on many factors, size of invoices, creditworthiness of the customers, number of days until the invoice is due (30/60/90), among others.

For more information about invoice factoring, go to www.ifgnetwork.com.