Is Accounts Receivable Financing Right for Your Business?

When it comes to financing your business, it can be challenging to determine which type of financing is right for your particular business in your particular situation. Accounts Receivable (A/R) financing allows you to borrow money against your existing invoices – this can be a great option, but how do you know if it’s right for you?

Here are six indicators that will help you determine if accounts receivable financing is the best option for you:

    1. 1. Inability to Obtain Traditional Lending – To be considered for a loan, lenders evaluate the kind of risks your company takes on in order to approve your loan. New businesses can have a hard time getting quality loan rates because the risk to the bank is higher, and the lack of collateral allowance often stands in the way of being approved. However, if you find your business turned down by traditional lenders, A/R financing could be an option.
    1. 2. Quick Growth – Quick growth doesn’t seem like bad news, but if it is an unanticipated surge in sales, you may find yourself struggling to catch your breath. This unexpected growth expansion can require extra supplies for manufacturing, more staff, and often more money to pay the bills. Unfortunately these frequently occur well before your company receives income from the growth.  If this is the case, you may be a good candidate for an A/R loan.
    1. 3. Expanded Offerings – Introducing a new product line, service, or other new branch of your business can be very exciting, but it also comes with a unique set of challenges. There’s often a need to invest in new equipment, personnel, or other items necessary to get this part of your business up and running.  In this scenario, A/R financing may be a good option.
    1. 4. Seasonal Sales – While many businesses experience relatively stable sales throughout the year, others can be very seasonal. High demand for seasonal merchandise or expected participation in upcoming events can cause sales to skyrocket, in which case, accounts receivable financing might suit you.
    1. 5. Strong Customers – Lenders are more likely to offer accounts receivable financing to companies with paying customers whose credit is in good standing.  While overdue accounts can be used as collateral, some lenders prefer to deal with customers that are less than 90 days late. Some lenders, including  here at Crestmark, provide invoice collection efforts and client credit reviews as part of their services.
  1. 6. Net Payment Time – Accounts receivable financing might be right for your business if your invoices request payment within 30 or 60 days. You could be a good candidate if you only need a quick infusion of money before the payments are due to bridge the gap between accounts payable and accounts receivable.

If your business is currently experiencing any/all of the items listed above, AR financing may be a great option.  For additional information, and to speak with a lending expert in regards to your particular business, give us a call at 888.999.8050.

Has your business run into any of these circumstances? Has accounts receivable financing worked for you?

Seven Questions to Ask Yourself When Testing a Business Idea

Most people have come up with a potential business idea at some point in their lives. After all, the idea is the easy part. Before investing time or energy into a new business, it’s important to critically analyze the idea to ensure it will be a smart use of resources. Here are seven things every new business owner should consider before moving forward and getting serious with an idea:

1. What is the customer profile? There’s no sense in starting a business without any customers, and the better you understand your potential market, the more likely your business is to grow and succeed. The current state of the economy makes it even more crucial to take some time to research your target audience because targeting everyone in general will be too expensive. Who are your potential competitors targeting? You might find they’re missing out on a niche market you can take advantage of once you’re in business.

2. What resources are needed? Understanding the full, up-front cost of a project is vital to ensuring its success. Consider the cost of materials, labor, advertising costs and other expenses. Will the costs outweigh the profits? If an idea isn’t financially feasible, put it on hold for a later time.

3. What is the purchasing cycle? The longer it takes for profits to reach the business, the more money must be spent up-front. Understanding your purchasing cycle beforehand will help with budgeting. Once you’ve decided to move forward with an idea, remember—whether your business will have a short cycle like most retail stores, or one that lasts for months: find ways to reach your customers at each point in the cycle.

4. What product or service is this replacing? In order to effectively sell something, a company must convince its customers to buy its products instead of something else. Determine what item customers will be willing to give up in exchange for the service offered by the new business. This will also help when the time comes to advertise the product.


Testing Bussines Ideas

5. What is a reasonable sales forecast? Determine how many sales can be reasonably expected, and compare this figure against the production cost of the item or service. For example, a restaurant owner might consider the occupancy of the restaurant, the average cost of a menu item and how many people could be expected to stop in on an average day. It might help to review competing businesses to draw estimates from their data.

6. How much growth potential is there? If you’re producing a hand-crafted item, for example, can it be mass-produced if the demand requires? Services that must be rendered by a skilled individual cannot be produced in high quantities. Leave room for growth, but establish limits early on.

7. Will the idea be viable in several years? Some business ideas seem appealing at first but would not be attractive in the long haul. Before deciding on a new enterprise, an entrepreneur needs to decide if he could be happy at that same business two, five or even 10 years down the road.

Of course, a successful business needs more than a smart idea, but testing each new idea against these criteria will help to create a secure foundation for the business to grow upon.

The Internet’s Role in the Rebirth of Mom-and-Pop Shop’s Success

Family-owned businesses were constantly steam-rolled again and again by the all-powerful corporate conglomerates in the 1980s and 90s. These big-box shops were able to offer a wider variety of goods to their customers at a lower price, and their size enabled them to steamroll the smaller and more specialized businesses. Just think, if you had the choice between Starbucks or a shop called “Jim’s Beans,” chances are you drove right past the Beans for the Bucks.

Rebirth of Mom and Pop shop

In recent years, however, a quiet revolution has begun to occur. Large companies, no longer able to sustain their growth and too bulky to adapt to changes in the economy and consumer needs, have begun to lose their footing.  As a result, small mom-and-pop businesses are taking advantage of the opening and have once more started to earn prominence.

This “rebirth” has all become a reality thanks to a little thing we all know and love: the Internet. With the growth of online stores, entrepreneurs are able to virtually market their goods all over the country. This increased visibility has led to some small online start-ups becoming extremely successful.

So how is the Internet acting as an almighty equalizing power?

— For one, low overhead cost.  Having your store online is far less expensive than operating the full-on brick-and-mortar home front. And, if necessary to choose one over the other, it’s possible operate the wired store with fewer employees. This enables these business owners to hold tighter profit margins and be more nimble in their pricing strategies.

— Personal discovery.  More often than not, a consumer will search the web for ideas on what to buy before romping around the streets to shop.  With an easy-to-navigate site advertising your goods, marketing the products in your store is not only manageable; it’s easier.  This is especially true of specialized businesses. Specific goods occupying certain niches are easy to search for and thrive on the Internet.

— Reaching out to buyers.  Gone are the days where small businesses can only cater to the locals.  Before marketing through the Internet became possible, the power companies that owned distribution channels were conclusively the most successful.  This is no more! With online shopping, the web makes it possible to market products to consumers around the world.

— Marketing personality. While selling to buyers across the country may seem impersonal, the Internet has created an answer for that as well.  A cozy, interactive atmosphere is maintained through social media outlets.  Business owners can communicate directly with consumers through blogs, Facebook, Twitter, you name it!  This encourages interaction, and participation which helps to foster customer loyalty and relationships that big-box companies can’t compete with.

While an online strategy is beneficial to pursuing growth, what consumers most want to see is diversity.  A street-side store has to focus on making a bigger presence online, while strictly online stores are beginning to develop more physical locations.  With diversity comes the ability to reach as many interested customers as possible.  Technology is constantly changing and improving, therefore; it’s important for small business owners to stay on top of trends and continue growth.