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Written by Gregg Elberg
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Wednesday, 14 March 2007 |
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Word Count: 580 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.
Copyright 2007 © Gregg Financial Services
www.greggfinancialservices.com
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