One Way To Finance a Company That Is In Trouble

The current post recession economy has left a number of companies in deep financial trouble. For some, revenues dropped below expenses, forcing cutbacks. For others, cash flow suffered because customers started paying slowly, starting a chain reaction of missed supplier payments, missed payroll, delayed orders among other problems. If there is one thing that the current economy has provided for small business owners - it's plenty of opportunities to get into financial trouble.

Many small companies that have run into financial problems could be helped with the right type of business financing. The problem is that companies that have financial problems usually don't have access to business financing. Financial institutions are very conservative and will only lend money to companies that have solid collateral, impeccable financial statements and a solid track record of profitability. This will rule out most small businesses and almost any company that is in financial trouble. It's the common catch 22 - where businesses that could benefit from funding don't have a way to access it.

However, there is a business financing solution that has been gaining popularity with troubled companies - it's called invoice factoring. Invoice factoring solves one common issue for small companies - cash flow problems created by slow paying customers. It solves this problem by working with a financial intermediary - called a factoring company - that advances you a payment for your invoices and then waits to get paid by your customer. This provides your company with the liquidity it needs to be able to meet its obligations on time without worrying about slow payments.

Factoring financing does have one important limitation though - it can only help companies that have cash flow problems that are created by slow paying customers. It cannot be of much help to companies that have other financial problems - such as low sales.

One of the advantages of factoring financing is that it is easier to qualify for than most conventional financing solutions. Generally, the most important requirement is that your customers need to have good commercial credit. This is important because your invoices are the collateral for the transaciton. Additionally, your company will need to be free of legal and tax problems.

Another important advantage of invoice factoring is that it usually does not have a fixed limit - like a loan or credit line. The factoring line is usually dynamically tied to your revenues, and grows as your business grows - provided you are working with solid customers.