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Tossing and turning at night won’t help your small business get paid, and neither will multiple conversations that rehash the same thread, ”When are we going to see payment?”

This is particularly true if you are not the heavyweight contender in your industry.

So while your C-suite executive tries to wrangle a new deal and then back fill orders, it behooves your firm to have a dependable financing relationship before things heat up. Then deals can proceed smoothly, and you won’t have to worry about the financing aspect of the terms.

What alternative options are there?

Nowadays, small and medium-sized firms can utilize the services of a factoring company to settle their payment concerns by assigning their accounts receivables to factors. The primary reason businesses use factoring companies is to get paid more quickly, say in 2-3 days rather than waiting the customary 30-60 days. In this scenario, the factor remits a large portion of the balance upfront to its client, perhaps 70-90%, and then the remainder (minus a factoring fee) when the balance is paid from the customer.

Who uses factoring companies?

They are used in a wide range of industries, including:

• apparel companies
• furniture manufacturers
• machine shops
• equipment suppliers
• business services
• housewares manufacturers
• temp/staffing agencies.

How can a manufacturer or service provider identify a factoring company to work with?

The International Factoring Association (IFA) is a great place to start a deeper dive into the topic of factoring. They have a matching service where a company seeking a factoring partnership can email specifics of their situation and receive information from interested factoring companies. Importantly, members of the IFA must adhere to its Code of Ethics.

As with any service provider, the best referral source is simply, word of mouth.  Ask business associates like bankers and CPAs for referrals, based on their experiences.

Photo courtesy of Creative Commons 2.0, chelsea-girl.