Monthly Archives: February 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.

January Employment Decline is Smaller

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According to the ADP National Employment Report ®,the estimated change of employment from November to December 2009 was revised by 23,000, from a decline of 84,000 to a decline of 61,000. The good news is that the January employment decline was the smallest since employment began falling in February of 2008. What this means is that small businesses are starting to get back on track.

There’s an increasing demand for business credit but a decline in the supply of banks that are loaning money. What’s more, as the small businesses sector becomes more healthy, helping to bail the economy out of the current recession, a number of small to mid-sized companies have started using invoice factoring as a means to stay afloat and grow.

Factoring accounts receivable, also known as simply factoring, is not as well known as the practice of bank loans, however, it has been in practice for more than 4,000 years. Factoring invoices is an excellent means of business finance because factoring is based on the asset of a company’s accounts receivable, with no debt incurred.

Mid-sized Businesses and Factoring Invoices

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The definition of a mid-sized business includes the fact that it typically has under 500 employees in the US, about 250 in the European Union, and fewer than 200 in Australia.

There are other factors used including annual sales, the value of a company’s assets and net profits, and in the European Union, turnover, balance sheet totals and headcount are used. Following are 2009 trends:

Downsizing of companies
Consolidation through mergers or acquisitions
Continued growth in outsourcing
Supply chain logistics services
Hiring temps
Offshore globalization
Senior citizens are a big commodity
Baby Boomers are retiring

Another trend for mid-sized businesses this year is factoring invoices. Many businesses are finding that they can leverage their customer’s invoices to keep their company running smoothly. Factoring accounts receivables provides the freedom to grow.