Daily Archives: February 8, 2010

As Employment Improves Factoring Invoices Offers Stability

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Unemployment rates fell from 10.0 to 9.7 percent in January, and the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and in transportation and warehousing, while jobs were added in temporary help services and retail trade. The number of unemployed persons decreased to 14.8 million in January, and the unemployment rate fell by 0.3 percentage point to 9.7 percent

Traditionally raising funds for a small business involves witing a business plan, raising funds and then executing the plan. With today’s tight budgets thanks to credit constraints at mainstream banks, many entrepreneurs are seeking new solutions. Most small business owners pull together cash from friends or family, then go ahead and start the business.

Fundraising can take more time than you think, but raising funds from investors is faster and usually easier because they respond better to a business that’s generating revenue. You must give up some ownership in your company with investors so the longer you can avoid raising the capital from others, the bigger your piece of the pie. That’s why factoring invoices once their business is up and running can provide stability.

Once a small business running, most business owners run into cash flow crisis, so factoring invoices is a good strategic maneuver. take funds from an angel investor if you don’t know you can multiply it. What’s more, raising funds from investors is often faster after you have revenues because they like the idea of investing in a business that’s already generating revenue.

Factoring isn’t a loan but the purchase of financial assets, or receivables, and it differs from traditional bank loans. Banks base their decisions on a company’s credit worthiness, whereas factoring is based on the value of the receivables. Also known as factoring accounts receivables, once a factor has approved the debtor, invoice factoring benefits businesses that do not get paid for 30 to 60 or 90 days. Due diligence efforts typically take a day or two, then a factoring company advances up to 90 percent against the invoices. Often the turnaround is in less than 48 hours. What’s more, there are many companies who don’t expect to buy 100 percent of a company’s receivables.

Lending Versus Factoring Invoices as Strategy for Entrepreneurs

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President Obama asked Congress to expand two lending programs for the owners of small businesses, hoping to create more jobs as part of his strategy for economic recovery. Small business has typically always been the seed for new jobs in a struggling economy.

A macroeconomic model is being used by the government as the method for calculating the number of jobs that have been saved or created through the economic stimulus package to show, for example, that when the plan was first implemented it saved or created 100 or 150,000 jobs during days one through 100 of executing the Recovery Act and the notes the estimated statistics for projecting that it will create, as an example, 600,000 more by the end of the summer.

Estimates are fairly conservative that a one percent increase in gross domestic product equals a bump to approximately one million jobs in the U.S.

According to the estimates of jobs saved or created by the ARRA of 2009 at different times are as follows: for the fourth quarter 20091.5 million jobs were saved with 2010 at 3.5 million, 2001 at 1.7 million, and 2012 at .3 million. (Source: Estimates of Job Creation from the American Recovery and Reinvestment Act of 2009 from the Executive Office of the President, Council of Economic Advisers.)

Smart small business owners are familiar with the strategy of factoring invoices to turn their accounts receivable into fast cash. It’s used as a short-term solution for some, while others have discovered factoring as a long term, or permanent, business funding tactic. Now, the Obama Administration is expanding two lending programs for the owners of small businesses, hoping to create more jobs as part of his strategy for economic recovery.