Eventually They Will Come Down, But What Do You Do In The Meantime?
Panic about increased interest rates to business is a combination of media beat-up and generational naivety.
In the Dark Ages of late last century interest rates were high. When this happened, bank liquidity dried up.
The businesses that grew stronger looked to alternate sources of funding.
As Laurie Azzano from The Receivables Exchange recently pointed out: “Our research shows that this cyclical financial behavior often begins with trade credit, with more than 60% of working capital tied up in outstanding invoices.”
“For most small businesses, the average turnover of receivables as result of trade credit can be nearly two months– essentially extending them a free loan that they could otherwise reinvest into their growth,” continued Laurie.
So if traditional financing is not an option, there quickly becomes a great benefit to releasing the capital in small business receivables. This is considering that once a receivable is sold, that cash is immediately reinvested into new inventory, products, employees, or anything that will earn a positive return for the business.
Releasing capital in small receivables is pretty straight forward. After all, the premise is over 4,000 years old.
However, if you haven’t gone down this path before, here a few questions you may wish to throw at prospective invoice financiers?
Questions you should ask
1. Do I need to have a strong asset base and/or credit history?
Your assets and credit history need not come into play, if you have credit worthy customers/buyers
2. Will you require my whole customer base?
Some invoice financiers will not provide funding unless they control all your accounts receivables. This is not always necessary. Look for one that is flexible enough to provide funding from just a couple of accounts.
3. Can I use this service on an “as needs” basis?
Don’t get caught up in a lengthy contract. This is the type of service that you want to be able to turn on and off like a tap.