Freight Factoring Companies

Small businesses, by definition are generally considered to be those with 50
employees or less. They do not have the resources to tackle entire industries or markets. Nor can they survive many mistakes because of their limited financial resources. The fact is that mistakes cost money; lost money has a very negative impact on cash flow; and cash flow is the life blood of any business, especially the small business.

Consequently, a small business’ management team needs to be very accurate in their strategic thinking. Accurate or precise thinking will lead to fewer mistakes. Fewer mistakes should improve or at least benefit cash flow and a strong cash flow reduces vulnerability.

This all sounds good but where should strategic thinking begin? First you have to know your business well enough that you can target and segment a market where the needs of the customer match your skills and services. Without customers there is no business, just a dream in someone’s head. Once you know that you can generate a customer base, you have to know how to price your services. What is it worth and can you sell it to your potential customers? If you can, you’ve passed the first of two hurdles.

Next you have to have an operating system that allows you to effectively solicit, secure, deliver, follow-up, bill and collect your accounts receivable. But before you do, you need to take at least three other critical elements into consideration.

First you must have enough start-up capital to sustain your business until it is generating revenue and, hopefully a profit. I n our experience we have found that close to 75% of all new businesses do not have enough start up capital. That is why 75-80% of them fail in the first three years of business. It is a business owner’s nightmare, they are selling their product or services, generating sales but don’t have the cash to pay vendors and sometimes even their employees. Why? Because all of their cash is tied up in the equipment and accounts receivable.
The second and third critical elements are tied into the conversion of accounts receivable into cash. That conversion is dependent upon good initial credit decisions on extending credit and then the ability to efficiently follow-up or collect for the service rendered or product delivered.

That is why factoring has virtually exploded as one of the more popular sources of CASH, CREDIT INFORMATION, AND COLLECTIONS in the financial industry. A quality factoring company will first purchase your accounts receivable for CASH giving you instant liquidity and the ability to grow and expand your business.

Secondly, a factor generally has a vast credit information data base including information on many of the businesses you may want to deal with including how promptly they pay their bills. The factor essentially becomes your credit department doing credit checks and assisting you in setting realistic credit limits. Once the factor purchases your invoice and bills your customer they use their STAFF (So you won’t have to use YOURS) to diligently pursue the collections of YOUR INVOICES.

Don’t get me wrong, factoring companies cannot take the place of good management and like any other vendor or business whose service you contract for, they are an expense and therefore you should use them and their services intelligently and effectively.

By intelligently, I mean take advantage of all of their services and their years of credit experience. By effectively, I mean you must use the liquidity factoring creates to grow your business by increasing sales, and most importantly, profits. As I have heard factors say so many times to potential clients, “Factoring is a cash flow solution, not a profitability solution unless you use our services wisely”.

Factoring expenses will reduce your revenue because they are an expense. They can also increase your revenue through increased sales opportunities and a reduction in bad debt. Factoring costs can also be offset by having the ability to take advantage of early vendor payment discounts. Plus by outsourcing the bulk of your credit and collection work you can reduce the personnel and credit information costs significantly.

Factors are not just a source of converting accounts receivable into cash, their value added services are often essential to the long-term success of many small businesses.

For more information visit: www.cafreightfactoring.com