Thursday, August 03, 2006

Too much of a good thing? Use Factoring!

For any size business, too much revenue from one customer can lead to difficulty in obtaining a business loan to provide the working capital necessary to compete for another day. As Laurel-Ann Dooley points out in The Startup Journal, just because you can land a big fish, doesn’t mean that you necessarily want one.

Of Dooley’s “Three Don’ts for Small Businesses with Big Customers”, the most critical one in my opinion is “don’t always expect speedy payment”. It can be difficult to meet weekly payroll when a big customer doesn’t pay you within 30 days.

In the eyes of the bank, once your revenues from a single customer exceed 10 percent of total sales, you become less bankworthy. In many cases, factoring of your accounts receivable is the best solution to accelerate a company’s cash flow to meet working capital requirements. A factor won’t care if you have customer concentrations in your accounts receivable as long as that customer pays its bills within a reasonable timeframe.

So if you need working capital after landing that big fish, consider factoring as a fast and easy solution.

Please feel free to contact me with questions or ideas for future articles!

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