Cash Flow Financing When Your Business Credit is Poor

By [http://ezinearticles.com/?expert=Stephan_Teak]Stephan Teak

The world of business is simply not a static place. It is the rare business that hums along without running into periods of great profits and periods of barren revenues. When barren times hit, credit can be damaged and financing can become difficult - particularly cash flow financing.

What is cash flow? It is simply the money that you have on hand to deal with debt obligations during a certain period of time. It is also often defined on a project by project basis. Let's look at an example.

I make bumpers. My sales department produces a home run. Toyota orders 400,000 bumpers for the new Toyota Camry model. After indulging in a few celebratory adult beverages, I start thinking through the project. Specifically, how am I going to pay for it since Toyota will only pay on delivery of the bumpers? I am going to need a lot of money for materials and labor to produce 400,000 bumpers. I feel a headache coming on and not from the celebration!

The immediate answer is to head down to the bank and ask for a loan. On the off hand chance you've been in space for the last two years, it is probably worth mentioning the finance industry has had a bit of a problem and isn't exactly handing out a lot of loans these days. I should probably also mention that the business went through a bad period a year ago and the credit rating came out of it looking like it had gone 5 rounds with Mike Tyson when he was young - bruised and battered.

All and all, I have no chance of getting financing at this point in time. My best option would be to look to private money lending, but that is going to be really expensive. I could be looking at paying 10 to 15 points and a high interest rate. Surely, there must be some solution? Fortunately, there is - cash flow financing using your accounts receivables.

You can sell your outstanding invoices in exchange for money today. A factoring company will pay you 70 to 80 percent of the invoice immediately. They then release the rest of the money once your customer pays the invoice and take a fee of three to five points depending on the situation. Importantly, the company is going to look at your customer when evaluating the risk involved, not at your company. Why? Well, your customer is the one that has to pay the invoice, not you! As a result, your bad credit does not matter to the company.

The world of finance is in a state of shock these days as banks small and large teeter on the edge of the bankruptcy abyss. This is not the case with factoring companies. They are providing cash flow financing every day and the process only takes a few days from application submission till you have cash in your hand. If you need financing, make sure you consider this option to meet your cash flow needs.

Stephen Teak writes about [http://www.factoringcompanyinformation.com]factoring for http://www.FactoringCompanyInformation.com - your source for factoring solutions to your financing needs.

Article Source: http://EzineArticles.com/?expert=Stephan_Teak http://EzineArticles.com/?Cash-Flow-Financing-When-Your-Business-Credit-is-Poor&id=1902720

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