One thing I keep telling my clients is that even in this economic jungle we are in, there are pockets food caches hidden for those who are more creative. Take receivables financing, for example. In the old days, one way a business financed their cash flow was to factor their receivables. In other words, run them through an account that was collateral for a bridge loan. The end result, the company received (somewhat) immediate cash for a large chunk of its receivable. In other words, they used a reduced amount of future cash to finance current business.
Sounds familiar? Look at our US Government; they’re experts at it.
A recent new technique in a CFO Magazine article, Fast Cash for Small Business by Alix Stuart has gained popularity. It is called The Receivables Exchange. A small business can transfer only a portion of their receivables to this exchange which auctions them off. The company receives 91%-96% of the receivable’s value in less than a week. This method of financing is much more streamlined than factoring.
So, is that good for your company?
That depends.
First, your financial people will have to run the numbers to make sure you are not mortgaging yourself into bankruptcy, especially if you only have a 6% net profit ratio.
Second, what is your strategy? Where is your company going? Plan out beyond the loan and see where you want to go and if this financial tactic gets you there, or pulls you off target.
Third, are you just getting a bridge loan to meet payroll? Why? You may be borrowing to cover up poor financial planning. The receivable financing may only be a band-aid for a hemorrhage, and we all know how bad a hemorrhage can be in a jungle.
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Go to http://www.ricknorriscpa/blog page and click the RSS feed at the top of the page on the right. This will enter all activity and new blogs into an Outlook folder named “RSS Feeds.”
If you want to track just one of the articles, choose the same RSS icon at the bottom of the article under Share.
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