Small Business Working Capital

Written by Patricia Tunstall
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Businesses often experience cash flow problems; this is so common as to be a truism, yet there is sometimes a stigma attached to this near-universal occurrence. Startup businesses are often incredibly shaky because they are not adequately capitalized, and cash flow and working capital become ongoing concerns. Unless there is startling growth in sales, this undercapitalized period may last a couple of years or more until cash flow is managed well enough to be consistent.

Consider Factoring Carefully

On the one hand, factoring can literally save a business from bankruptcy. On the other, customers may react negatively when they know you are using a factoring company because they think your business is in trouble. Quite definitely, accounts receivable financing is meant to be a short-term solution, not a cure-all that is applied frequently.

Although a factoring company focuses on the credit worthiness of your customers, a factoring bank will want to investigate your credit history as well as that of your customers. If your customers are not reliable, meaning, they do not pay on time or don't pay at all, chances are a bank or factoring company will not accept your application for factoring. In this case, you will have to be creative in your financing (equipment leasing, debt consolidation) to save your business.

Factoring companies do have a minimum dollar amount for monthly invoices that they will take on. This varies from company to company, but if you are a startup or very small owner/manager business, you might not qualify on this basis alone. Keep in mind that factors can turn down invoices they believe will not be paid because the customer is a bad credit risk.


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