Accounts Receivable Financing - The Fine Art of Happiness
Four thousand years ago, a
long time before banks were invented, the concept of accounts receivable
financing, or factoring, was invented somewhere in the midst of the Roman
Empire. Why did this make merchants happy? Because they would be paid for
their merchandise many months before payment for their merchandise was
received. With this cash in hand, suppliers, employees and Imperial taxing
authorities could be paid. These financing agreements were based on long
term relationships and trust.
Two hundred years ago
accounts receivable financing evolved in the United States of America,
primarily for the textile industry, for the same reason: to accelerate
growth and profitability by accelerating cash flow. Again, long term
relationships and trust were the main basis for these financing
arrangements because there was no effective court system to enforce
international contracts for the purchase of European fabrics for American
factories.
Thirty years ago the
concept of accounts receivable financing, or factoring, was considered to
be on the fringes of respectable financing for products or services other
than textiles. It was considered radical to finance the accounts
receivable of relatively high risk businesses. Since then accounts
receivable financing has evolved into a multi-billion dollar industry.
Long term relationships and trust are still very important because when
you utilize accounts receivable financing you are entrusting a commercial
finance company with the lifeblood of your business- your cash flow.
Let’s make some
assumptions. The purpose of life is to be happy. As a business owner, you
are happier if your customers pay immediately when they receive your
invoice as opposed to many months later. As a business owner, you are
happier if you are more profitable when you are selling more goods or
services at greater profits.
Accounts receivable
financing may be the enabling tool for more capacity, more flexibility,
more fluidity, more efficiency, and more sales if you have to give credit
terms to your customers and your internal cash flow, or bank financing
will not keep up with you need for cash to grow. So you need to ask
yourself, are you happy with the status quo? Do you feel like you are
stuck because your capital expenditures and operational costs are too
high? In the life of your business, do you feel like you are being held
back from succeeding- like receiving the “Do not Pass go, do not Collect
$200” card from the game, Monopoly?
Here are some questions to
ask yourself regarding overcoming obstacles to your happiness and success:
What is your market? Is it local, national and/or international? What are
your short term and long term challenges? What is your customer base? What
is your company sales and distribution strategy? What is your strategy for
accelerating growth, market presence and penetration? Do you have strong
gross margins with additional opportunities to drive operating
efficiencies as you business scales upward? Will you realize increasing
margins as a result of increasing sales? Query: could your business be
expanded exponentially if you had virtually unlimited financing? Is this a
reasonable goal and would this make you happy?
You need to evaluate the
cost-effectiveness of accounts receivable financing versus the scalability
and capability of your own company. Accounts receivable financing may be
your solution to the fine art of happiness and your success as a business
owner.
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Mr. Elberg is a
licensed attorney and licensed real estate broker. Gregg Financial
Services is a full service brokerage for commercial finance companies
and banks that fund B2B businesses. Mr. Elberg arranges funding from
$25,000 to $50 million per month at competitive pricing, and works to
reduce your financing costs as your company grows. For more
information about GFS, please visit our website:http://www.greggfinancialservices.com
Copyright 2007 ©
Gregg Financial Services
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