Opportunities in business can be exciting but frustrating if you don’t have the cash required to take advantage of them. On one hand, this opportunity could be too hard to pass up because of the potential growth possibility, but, it can also mean accepting the often onerous terms of the lender to acquire the cash needed.
Owners can choose from small loans, factoring or a new twist on receivables financing. The least restrictive to the business owner is the receivable financing solution. It offers an online auction marketplace designed specifically as an outlet for small to mid-sized businesses to accelerate positive cash flow while maintaining complete control of the transaction.
This online receivables marketplace allows businesses to sell their commercial accounts receivable through auction. Financing opportunities in this manner is similar to factoring but the transaction is entirely different.
The auction platform gives greater control to the seller of the receivables. On the contrary, factoring allows the factor to set the terms, including advance amount and fee. In addition, the arrangement can often carry with it an all-asset lien, which requires that all of the invoices from a particular customer be included and that your customer be notified that your receivables have been sold.
Factoring can come at a high cost with many restrictions. With factoring, not only do you lose control of pricing, but by notifying your customers, you can potentially place the relationship with your customer at risk. Seller determine which invoices to sell, the minimum advance amount and the maximum discount fee they will pay.
Also, their customer is not notified, meaning the Seller retains the relationship. Once the accounts receivable are posted to auction and the auction goes live, buyers-a global network of accredited institutional investors-bid to purchase these invoices in real-time, ensuring a competitive cost of capital.
Loans can also be quite restrictive and time-consuming for small to mid-sized businesses-and that is if they can get approved. This loan process can often take weeks and months of gathering information, filling out applications, interviewing with the loan officer and then waiting for his answer just to find out if your company has been approved.
By the time the money is made available, the price of the specialty equipment or added resources you needed has gone up, the prospective employee has found another job or the larger office space has been snapped up by another business or worse, the competition.
Another limitation of financing business opportunities with a traditional loan is that the bank sets all of the terms- the rate, payment amount and penalty, and what collateral is required. Restrictive covenants are often part of the loan terms as well.
These clauses allow the bank to dictate the actions of the business in order to satisfy the loan requirements. It protects the lender by enforcing financial compliance of the business. If anything significant changes in the financial health from the time the loan is issued, the bank can call in the loan-worse force you in default which could lead to bankruptcy-because the covenant has been broken.
By using the online auction marketplace for trading receivables, the seller gains quick and flexible access to working capital without these restrictions and without taking on additional debt. Another attractive aspect of this alternative working capital solution is that the seller can potentially receive funds in as little as 24 hours.
So, for small and mid-sized company owners, this type of receivables financing means freedom. Instead of relying on and being beholden to other lending entities, you can now dictate the terms and unlock the cash held in accounts receivable quicker, with little risk and few restrictions.