BCA

By John Riley

Acquiring and managing the financial resources of a company has always been, and will continue to be, the greatest challenge for management. It is even more critical for start-ups and small businesses whose needs are great and their financial assets limited. As a result, when a small company does qualify for financing, it often requires paying higher interest to banks or giving up a bigger slice of company equity to venture capitalists, but if you can’t qualify, factoring may be the solution.

Factoring is one source of funding that is attracting more attention these days. An example is Liquid Capital of Arizona, a major player in the field. They are looking to partner with small businesses without taking equity, sharing in profits or making business decisions. While they are ready to provide working capital to most entities, their focus is on business-to-business companies.

“We offer five basic services to help small business,” says President Joel Gottesman, “ and over time we have found more and more companies wanting to know more about factoring.
Our focus now is to try to provide more information about what we offer and where we think our services can best serve our clients”

Full factoring is one of those services. The way it works is straight forward. All of a business’s approved accounts are sold to Liquid Capital. Then Liquid Capital typically advances 80% in cash up front and the balance as they collect on the acquired accounts’ outstanding invoices, less their discount fee.

Another option is spot factoring. In this scenario, the same services as full factoring are employed except only a portion of the business’s approved accounts, chosen by the client, are sold to the factoring company.

Purchase order finance is another service, but it is different in application. Liquid Capital finances purchase orders for the purchase of presold inventory. Factoring the accounts receivable on delivery of the goods to the manufacturer funds the payment to the manufacturer.

The factoring company can also act as the business’s outsourced accounts receivable department. Their specialists underwrite the customer’s credit, provide collection services, process payments through a lock box, and provide a full on-line reporting system. The cost is very economical compared to staffing a credit department in-house.

Finally, the factoring company provides credit insurance. It is an economical way for a business to help insure selected invoices against loss from a customer’s insolvency.

There are several ways a factoring company can help according to Gottesman, “ We can fund growth opportunities, the sale of a business, delay the need for additional equity, help avoid equity dilution, fund ineligible receivables on a bank line and fund Chapter 11 reorganizations. And the process of helping a client get started is made easy by the experience and customer focused attitude of our people.”

With the many financial problems facing businesses today, factoring can be one of the tools management can fall back on when things are most difficult. It can be the right solution at the worse time.