Monday, January 25, 2010

Tips for Improving Your Cash Flow

Here is a guest post from Arthur Maur about financing your business.

Three New Methods for Speeding Up Financing...Tips for Improving Cash Flow in Small Businesses. The benefits of getting money into your business as fast as possible are endless, which is why you should always encourage customers to start making their payments in a timely fashion. However, there are always going to be a few accounts that have a lag between payments. Keeping your business's cash flow moving is important, and one way to achieve this is to borrow money against the business's receivables.

Here are three different methods of doing so that may work in your situation.
1. Factors: There are three main benefits to using factors. Cash is delivered immediately upon shipping. The factor is responsible for following up with accounts receivable, not you. Protection against bad debts is also often offered by using a factor.When using factors, you agree to sign over all receivables to them, and receive a credit line in exchange. The prime rate, plus an extra amount usually around 3 percent, is your responsibility to pay. The factor will take care of all accounts receivable you've signed over, as well as other services like mailing and bookkeeping. Your customers only know the factor as an accounts receivable agent.Be sure to check on the background of the factor before agreeing to work with them. Speak to other clients of any prospective factor to be sure they are professional and complete all work on time.

2. Invoice Discounters: Similar to a factor, the invoice discounter is more temporary and takes on only case at a time from your business. A contract must be made between the business and the discounter to cover some or all of the future transactions. This means that when an invoice is issued, you contact the discounter to ask them to purchase it. If it's valid, they agree and within 48 hours you have the cash your business needs, minus the percentage the discounter takes. This percentage depends on the length of the time the receivable will be outstanding. The longer it is outstanding, the more the discounter takes.

3. Banks: Banks are another good option for financing through your receivables. Unlike the other two options, banks consider your receivables collateral. This means you will still be responsible for collecting from your customers. The loans will also show up as debt on financial records, which can be avoided by using a factor. Factoring your receivables is considered a straight sale.However, you may want to consider financing through a bank as they often charge a lower interest rate than other methods. It also builds rapport between you and the bank, which can come in handy if you need a larger loan. Increasing the line of credit without a new application is another benefit to bank lending. Once you've made new sales you'd like to borrow against, it's as simple as contacting the bank with the new information.

Canadian government grants.

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