Accounts Receivable Factoring Can Relieve 51 Percent of U.S. Small Businesses With Cash Flow Issues

BETHESDA, MD — The Interface Financial Group (IFG), North America’s largest alternative funding source for small businesses, announced it is stepping up marketing activities offering accounts receivable factoring as an alternative form of financing to the reported 51 percent of small businesses that have experienced cash flow issues in the last 90 days. According to the December Discover Small Business Watch report, the remaining 45 percent of the 700 small business owners surveyed have not experienced cash flow issues, leaving 4 percent who are not sure. In the wake of banks’ cuts in small business lending, small businesses are seeking alternative means of funding to ensure success in 2010.

In today’s credit restricted economy, it is more important than ever for small to medium-sized businesses to know what forms of financing are available to them. The recent Treasury report verified the country’s largest banks cut their collective small business lending balance by another $1 billion in November. Twenty-two banks have cut their small business loan balances $12.5 billion since last April. Since that time the banks’ total lending has fallen 4.6 percent in that seven-month period, to $256.8 billion.

Banks are protecting their internal balance sheets and not taking on the risk in the form of loans to small businesses; therefore, emerging growth companies need to rely on alternative forms of financing like accounts receivable factoring to ensure their success.

"Given these declines banks are saying the reason they are lending less is because small businesses are risky borrowers. In reality, when sales are slow, the last thing people want, or need, is debt," said IFG’s Chief Executive Officer George Shapiro. "I also believe this is why we’ve seen a number of small to medium-sized companies begin to employ accounts receivable factoring."

The Discover survey also revealed 35 percent of small business owners rate the current economy as fair, which is up from 30 percent in November. Sixty-one percent rate it as poor, while there are 4 percent who believe it is good or excellent. Overall economic confidence among small business owners in America held steady in December as fewer of them believed the U.S. economy was getting worse compared to November and more saw conditions for their own businesses getting better over the next six months of 2010.

There is one small business strategy that a number of small business owners have started to employ — and that’s invoice factoring, a form of commercial financing or debt financing which has collateral as a basis for borrowing money. Factoring aids small businesses as they need funds, since the money received is based on accounts receivables, and there are no obligations like there are with loans, while borrowing simply puts them in debt. This financial strategy is ideal for businesses with customers who pay 60 to 90 days out, as it leverages small businesses accounts receivables. IFG makes arrangements to purchase a company’s invoice, or invoices, pays immediately, and in essence, loans money until the company’s customer’s invoice is paid.

IFG looks at the creditworthiness of the client’s customers and can fund within as little as 24 hours. There are basically three parts to a factoring transaction: 1) Advance — the percentage of the total amount of the invoice the company has access to when they are funded, which is around 80 percent, and depending on the industry, it can be 90 percent; 2) Reserve — the remaining funds from the invoice are held back and released when the customer pays the invoice; and 3) Discount fee — the fee associated with doing the transaction which gets deducted from the reserve. Based on how long it takes to receive payment of the invoice, the fee can be from 2 to 5 percent of the total value of the invoice.

The Interface Financial Group specializes in construction factoring, and today IFG is finding that single invoice factoring is a popular new tactic, allowing companies to factor one invoice at a time. The company does not expect to buy 100 percent of a company’s receivables, and there are no minimum or maximum sales volume requirements.

IFG’s recent private label factoring products include: Export Factoring, providing factoring services for companies who export from the United States and Canada; P.O. Funding to finance purchase orders when a company receives a purchase order and needs to purchase supplies to fulfill the order; and Inventory Financing, a solution promoting a company’s growth by funding them when they must expand and purchase inventory.

About The Interface Financial Group (www.ifgnetwork.com)
The Interface Financial Group (IFG) is North America’s largest alternative funding source for small business, providing short-term financial resources, including invoice factoring (invoice discounting). The company serves clients in more than 30 industries in the United States, Canada, Australia, and New Zealand, and offers cross-border transaction facilities between the U.S. and Canada. With more than 140 offices across North America and over 35 years of experience, IFG provides innovative invoice factoring solutions by offering short-term working capital to growing businesses. Single invoice factoring, or spot factoring, is an extremely fast way to turn receivables into cash.

IFG was founded in 1972 to provide short-term working capital to help small to medium-sized businesses grow. The IFG organization operates on a local level, providing clients with local knowledge and experience and business expertise in numerous diverse areas in addition to accounts receivable factoring, including accounting, finance, law, marketing and banking.