Accounts Receivable Financing- Help

Success is not an overnight occurrence for most businesses. Years of hard work and struggle are a common denominator for most enterprises. Success as a concept can be complicated because it may involve more than profits on a balance sheet. The MSN Encarta dictionary defines success as:

1. Achievement of intention: the achievement of something planned or attempted;

2. Attainment of fame, wealth, or power: impressive achievement, especially the attainment of fame, wealth, or power;

3. Something that turns out well: something that turns out as planned or intended;

4. Somebody successful: somebody who is wealthy.

What is business failure? It may be that most businesses don't die or fail; the owners close them for reasons unrelated to whether the business is making money. According to David Birch, former head of a research firm specializing in studying small business data, would-be entrepreneurs don't realize what's truly involved with running a business. He estimated survival rates:

• First year: 85%

• Second: 70%

• Third: 62%

• Fourth: 55%

• Fifth: 50%

• Sixth: 47%

• Seventh: 44%

• Eighth: 41%

• Ninth: 38%

• Tenth: 35%

"Once you've hit five years, your odds of survival go way up," Birch said. "Only two to three percent of businesses older than five shut down each year." Hard statistics on business success vs. failure rates are hard to establish. Mark Twain once said, “The news of my death has been greatly exaggerated.” The same may be true for many businesses.

Accounts receivable financing can help to make the difference between success and failure for many B2B businesses that need capital to grow. The terminology: invoice financing, invoice funding, factoring, factoring receivables and accounts receivable financing are all terms that mean essentially the same thing: the process of selling your invoices, your accounts receivable, to a commercial finance company to accelerate cash flow. You sell the account receivable. The commercial finance company advances you 70% to 90% of face value. Your customer pays the invoice to the commercial finance company. They rebate to you the difference between their fees and the remaining cash. If your business sells products or services to other businesses or to the government, with a gross margin of 25% or more you can grow profitably with accounts receivable financing; and you can give terms to your customers.

Asset based financing is a form of accounts receivable financing for larger transactions. The main difference between asset based financing and accounts receivable financing is price: larger transactions may be priced with a spread of 2% to 4% over the prime rate plus an administrative fee compared to factoring fees of 1.5% to 4% per month. The actual amount of charges depends on the contract terms which vary widely. In this author’s article, Financial Myths vs. Financial Facts there is an extensive discussion regarding various pricing methods and outcomes.

Imagine if your business were like a flower with the chance to bloom the first time in years. There is a plant known as Agave parryi, also known as the Century Plant. They often take forty to sixty years to flower. Then they die. Few businesses can wait that long to flower.

The asset based lending industry is a multi-billion dollar business. Companies large, small, and startups participate in accounts receivable financing and asset based lending. Purchase order financing is available to pay for the cost of goods when purchase orders are too large for the business to self-fund the product. If you need help with capital to grow, these are important financing techniques to consider for your business’ success.

In August 1965 The Beatles released a Studio Album called: Help! The song was a number one hit single. The song was written by John Lennon and Paul McCartney. At this point in the career of the Beatles, they had not personally made much money and they may have been on the brink of failure because of artistic differences and financial naivety. John Lennon said that the lyrics to Help! were a cry for help and a clue to the confusion and despondency he felt. He also regretted the commercial pressures to make a successful upbeat record that compromised his artistic sensibilities. The Beatles succeeded in writing many of the most popular songs in music history; they were one of the most successful recording artists of all time. Nevertheless, the Beatles failed to stay together as a live performing group after 1970. There were only ten years of live performances. Decades of royalties and riches followed.

Here are the lyrics to The Beatles - Help! by John Lennon and Paul McCartney:

Help, I need somebody,

Help, not just anybody,

Help, you know I need someone, help.

When I was younger, so much younger than today,

I never needed anybody's help in any way.

But now these days are gone, I'm not so self assured,

Now I find I've changed my mind and opened up the doors.

Help me if you can, I'm feeling down

And I do appreciate you being round.

Help me, get my feet back on the ground,

Won't you please, please help me?

And now my life has changed in oh so many ways,

My independence seems to vanish in the haze.

But every now and then I feel so insecure,

I know that I just need you like I've never done before.

Help me if you can, I'm feeling down

And I do appreciate you being round.

Help me, get my feet back on the ground,

Won't you please, please help me.

When I was younger, so much younger than today,

I never needed anybody's help in any way.

But now these days are gone, I'm not so self assured,

Now I find I've changed my mind and opened up the doors.

Help me if you can, I'm feeling down

And I do appreciate you being round.

Help me, get my feet back on the ground,

Won't you please, please help me, help me, help me, oh.

The bottom line: if you need help with your cash flow for your B2B business, accounts receivable financing may be the answer for your success.

Copyright © 2007 Gregg Financial Services

www.greggfinancialservices.com