At the turn of the 19th century, major wealth was being accumulated by such great men as Morgan, Carnegie, Astor, Guggenheim, Vanderbilt and many others. These men controlled the financial wealth of a nation and many times did so by manipulating stocks and bonds. Or did they?
 One name absent from almost everyone’s list was Hetty Green. Hetty was well known by her male peers as “The Witch of Wall Street.” She was a miserly woman who dared to play in an all male game. In fact her large cash war chest and cunning brought many of these same men close to financial ruin. Hetty’s knack for figures and her keen eye helped her build a fortune estimated at over $100,000,000 ($2 billion in today’s dollars). Her estate was almost double that of the great financer, JP Morgan. Hetty loaned money, several times bailing out New York City with million dollar loans, controlled railroads (enabling her to rob the robber barons), invested in Real Estate as far away as Texas and of course manipulated stocks and bonds.
Hetty was different than the famous families of the gilded age. Hetty got her enjoyment from making and saving money, not spending it. She wore plain black dresses until they wore out, used carriages until they fell apart, and moved regularly to keep the local taxman at bay. At one point she brought her only son Ned to a free clinic for treatment of a leg infection and herself suffered in pain for years due to a hernia, because she refused to spend the $150 for an operation.
As frugal and conservative as Hetty was, her son was not. Shortly before Hetty’s death in 1916, Ned moved to Texas to manage the family properties. To Hetty’s disapproval Ned returned with an ex-prostitute who he employed as his housekeeper, before eventually marrying her. Ned’s inheritance after his mother’s death would eventually allow him and his new bride to live the lifestyle of the rich. Even Ned’s spendthrift ways couldn’t deplete Hettys legacy. Upon his death Ned’s $100,000,000 inheritance passed to his sister Sylvia. Sylvia died in 1951, still with the original $100,000,000 Hetty had left behind. This time the taxman would be the big beneficiary of Hetty’s money, taking over half. The balance was left to 64 different charities, thus closing the last chapter in the life of the richest woman in the world.
 Most companies occasionally experience cash flow shortages. This article will explain how to address this common problem and will also suggest strategies to solve it. Please note that this article is not meant to replace the advice of a qualified professional. If your company is experiencing serious cash flow problems, you should consider contacting a financial specialist immediately since cash flow difficulties can be serious and seldom resolve on their own.
The most common cash flow problem occurs because customers exceed their credit terms and take longer to pay. Companies routinely give customers 30 days to pay their bills, but due to economic conditions, some clients may stretch their payment terms to 60 days. If a company has to wait almost two months to receive payment for invoices, it needs to find funds to meet current expenses. Usually, these payments are generated from reserves which are replenished by paid invoices. Problems start when reserves dwindle as expenses mount.
Two ways exist to protect reserves. One approach is to delay the company’s expenses until they match the payment cycle of the business’s customers. The other is to attempt to accelerate customer payments. Ideally, both approaches should be taken to achieve the most optimal solution.
The most common way to delay expenses is to contact vendors and ask for extended terms. If your company has been a loyal and timely payer, your request should be granted. However, if you do renegotiate payment terms, assure that all future payments are made on time. Do not risk your vendor relationship or you may be forced to pay COD for your goods or look elsewhere for new vendors. Avoid missing payroll and payroll taxes. If these situations are imminent, seek the help of a qualified advisor.
There are two easy ways to accelerate the payment of invoices. Offer customers a discount to pay quickly. The “2%/10″ is an industry standard that allows customers to take a 2% discount if they pay an invoice within 10 days. If this approach is not sufficient to solve a cash flow shortage, consider the process of factoring. Invoice factoring accelerates your revenues by using a financial intermediary to advance funds against outstanding invoices. The factoring company quickly sends you a large percentage of an outstanding invoice and settles the transaction with your company once the customer has paid in full. The factoring fee is based on volume, credit quality, and invoice age among other variables.
Factoring is easier to obtain than conventional business receivable financing, but it is more costly. It is important that your company has quality receivables from credit worthy customers. Factoring can work well if a company has small cash reserves but large receivables, again from high quality customers.
Most cash flow shortages require a comprehensive strategy to manage both income and expenses to ensure liquidity. Factoring is a good tool which can help accomplish this goal.
 Financing a business in today’s economic climate is certainly a challenge. With banks and credit unions limiting access to working capital, a number of businesses have found it difficult to finance their day to day operating expenses. Companies that would otherwise be considered financially sound are having a hard time managing cash flow and securing the business credit so vital to their needs and growth aspirations. However, one financing option is allowing companies to use their existing assets to finance their business. It’s a financing solution that goes back over 4000 years and it’s one that empowers business owners to use the liquidity built up within their own assets to finance their day to day needs. Invoice factoring is that one financing solution companies can turn to when conventional lending institutions are no longer an option. However, the question then becomes, how does a company integrate invoice factoring into their business?
When looking at invoice factoring, consider it as outsourcing your company’s receivable’s collection. Invoice factoring works by allowing companies to sell their customer’s unpaid invoice to a financing company. In return, the financing company will extend credit based on the value of the invoice and the ability of the customer to pay that invoice. Companies secure the business credit they need, without the burden of having to wait for their customers to pay. This improves cash flow and allows the company to use the money to finance whatever business plans they have.
Integrating invoice factoring means your company must be in constant contact with the financing company in order to provide them with the necessary information relative to the customer’s ability to pay. Invoice factoring has become so popular amongst businesses today, that it’s essential to be available when the financing company needs input. To do their job efficiently means to have access to the type of information only your company can provide them with. Otherwise, the financing company will simply move on and work on other account. This means your company should provide them with a working phone number, email address and contact names in case they need vital information when collecting.
When looking to benefit from your relationship with a factoring company, be sure to be available when they need access to essential information. Integrating invoice factoring into your business is relatively simple, if and only if, you help the financing company help you. The service is an impactful way to finance a business and it’s those companies that work alongside the financing company that come out on top.
 According to the IRS, over 50% of businesses in the United States face some kind of fine for late or incorrect payroll tax filings. Small businesses that are unable to pay these fines face astronomical interest rate charges. Aside from charging exorbitant interest rates, the IRS has a number of additional avenues to pursue which could include seizing company assets, or putting a lien on those assets. Even with companies moving away from manual payroll processes, there are still mistakes being made and these mistakes are becoming more and more costly for small business owner. In order to avert these fines, small businesses must remain up-to-date on the most recent government rules and 2011 tax laws. Unfortunately, many small businesses lack the manpower needed to keep abreast of recent changes in federal regulations. So, what can small businesses do to avert such costly IRS fines?
One of the more impactful forms of business financing in today’s economy is invoice factoring. Factoring programs allows small businesses to secure working capital through their existing assets. These assets are essentially the company’s receivables. Factoring companies allow small businesses to use the liquidity within these assets as collateral. As such, they provide small businesses with what amounts to an advance on the value of their customers’ unpaid invoices, allowing the small business to secure the financing they need to meet their debt obligations. Factoring companies can help small businesses with their 2011 taxes by sending advances on these invoices directly to the IRS. Or, if the small business prefers, the money can be provided to them directly. In essence, factoring plays a vital role in allowing small businesses to avoid costly penalties from the IRS.
Not only does invoice factoring help alleviate issues pertaining to tax bills, it also helps small businesses in terms of cash flow management and ultimately allows them to avoid having to finance their customers’ business. Because of the recent financial crisis, more and more companies are taking longer to pay invoices. The effects are felt throughout the economy as late payments force banks to raise interest rates. Higher cost of capital kills small business owners and having customers take too long to pay invoices does nothing other than to exacerbate the problem. However, invoice factoring provides small businesses with the capital they need to finance their operations. They can use this money to pay any late or incorrect tax filings, or can use the money to finance their day to day operations.
 Traditionally, most entrepreneurs use business plans to raise funds and kick off their businesses. However, the current economic situation has forced banks to institute budget cuts and credit constraints, meaning entrepreneurs have to think of new ways to raise business funding. Such has been made possible by use of new solutions like factoring invoices once the business has taken off. Other than this strategy, some entrepreneurs have raised funding from family and friends. Let’s face it, raising funds for business certainly isn’t an easy undertaking. It can take longer than an entrepreneur had estimated. Strategies such as bootstrapping, and raising some cash Plus enable entrepreneurs actually raise business funding faster.
Fact is, most venture investors are attracted to businesses that generate impressive revenues without necessarily having borrowed money from investors. Therefore, it pays to prepare yourself for some tough investment decisions, such as ceding some stake of the business to the investor. The trick is, if you can sustain your business for quite some time without investor funding, the business actually gets more value when an investor suffices. But, when your business has already taken off and is doing fine, factoring invoices are a strategy of enabling your enterprise stay afloat from cash flow problems. Factoring invoices allow you to maneuver problems that can arise from your business suffering cash flow challenges.
The trick is, never take funding from an angel investor if you are not sure it will multiply. Like earlier stated investors like businesses that are already up and running, and performing impressively as well. With such, raising funds from them becomes easier and faster. Some pointers about factoring are helpful at this point. To begin with, factoring is not a loan, but rather the buyer of financial assets or receivables. The difference between bank loans and factoring is in the number of parties involved in each transaction. Whereas bank loans involve only two parties, factoring involves three parties. Additionally, whereas banks will determine funding by the credit worthiness of an enterprise, factoring is purely based on the value of the receivables.
They are known as factoring accounts receivables, in which once a debtor has been approved by the factor, invoice factoring will benefit businesses that won’t get paid for one to three months. Factor due diligence takes just one or two days, upon which the factor moves up to 90 per cent against the invoices. In most cases, the turnaround is two days.
 If you own a business, you know the heartburn that can ensue when a customer does not pay you in a timely fashion. Often these delinquent accounts go to collections. That rarely helps. With customers who are chronically late in paying, nothing tends to change their habits. If you have a customer who is usually on-time with payments who has had a bad month or two, collection action can disturb the business relationship.
How can you minimize such difficult scenarios? First, check the credit of a business who wants to purchase goods or services from you, before deciding to accept that business as a client. Then, implement a sound strategy for billing and handling late bills efficiently.
Continue reading “How to Manage Your Companies Accounts Receivable” »
 As the media talking heads and politicians begin to declare an economic recovery at the behest of the market makers, the small businessman is far from feeling its effects. Through both recession and recovery, the decisions that the small businessman makes and the strategies that he employs alone will determine the fate of his business. Below are five proven strategies that have been proven to help small businesses thrive not only in good economic times, but in times of economic recession as well.
1. Survival of the Fittest. A recession can be viewed as proof of Darwin’s theory, as businesses without tight structure, excess capital, and plans for rainy days will inevitably fail, leaving those that remain the ability to expand among a much minimized pool of competition. To be the one on top, service oriented businesses would do well to strive for efficiency in fulfillment of their service. Product oriented companies will survive if they provide their buyers with the easiest system for purchase.
2. Effective human relations. Economic recessions bring an abundance of workers, but only the businesses with the best hiring practices will be able to take advantage of this increased labor pool. Businesses who are able to think long term with their hires, instead of simply hiring people to plug holes caused by the recession, are the businesses that will thrive after the recession abates.
3. Going virtual. Businesses able to streamline by taking advantage of virtual help have a definite leg up in a recession environment. Hiring virtual employees cuts down on operating costs drastically, as well as allows for greater expansion potential. Also, online meetings are by definition more efficient; it allows businesses to focus solely on getting the work done most cost efficiently without geography being a concern.
4. Brand management. Most businesses falter by trying to offer more and more in an environment of less and less. Customers in a recession are looking for efficiency, not endless add ons. The business that uses a recession to showcase the strength of its product or service niche is the business that will bounce back afterwards, with increased reputation to boot.
5. Necessity is the mother of partnership. Egos go out the window in a recession. Lean times allow for partnerships that would usually not occur, which can take the pressure off of all involved, giving much needed leverage to wait out the bad times.
As the economic recession has created quite the obstacle for businesses, we would love to hear how you, as a small business owner has managed to weather the economic storm. Did any of the strategies stated above seem to work for you? Feel free to post comments below.
 On Feburary 22, 2011, Barack Obama spent his 12th visit to the state of Ohio speaking to small business owners. Addressing the entrepreneurs and new independent professionals, the President claimed that “The big companies generally get most of the attention in our economy…” further remarking that “it’s small businesses like yours that help drive America’s economic growth”
Speaking at a promotional event at Cleveland State University, Obama’s visit follows on the heels of an exclusive private dinner last week. Steve Jobs, Mark Zuckerberg and Eric Schmidt were in attendance, among other huge US technology executives. Whether the President’s subsequent switch to playing to the needs of small business owners will be well-received is yet to be seen. His pro-education, pro-infrastructure, pro-research plans are intended to provide these small American companies with advantages that will boost them ahead of stiff foreign competition.
The Ohio visit was not an entirely solo affair, members of the administration accompanied the President. Tim Geithner, Treasury Secretary, along with other officials, led smaller sessions with the small business owners. Giethner spoke of different advantages the administration has promoted to help small businesses, including tax cuts and easy access to capital. Small Business Administrator Karen Mills talked about helping entrepreneurs, while the Commerce and Energy Secretaries also held specific sessions.
Obama did focus on the fact that it was harder for smaller firms to borrow money, a problem that has only compounded the plight of Ohio businesses. The state has been hit hard by the poor economy, with a 9.6% unemployment rate, higher than the Labor Department’s reported national average of 9%.
During the individually led sessions, Obama attended some, and it was announced that eight future round table meetings are in the works. As part of the Startup America Partnership campaign, these discussions in cities from Boston to Silicon Valley, California will provide entrepreneurs with a forum to discuss ways to make their work easier.
Ideally, these meetings and initiatives will all come together as large companies like Facebook, Hewlett-Packard Co. and IBM Corp. invest more in startups. If, as Obama claims, small businesses are the key players in the economy of the future, rerouting cash to them from larger industries should promote increased prosperity.
 Cash flow shortages can create major headaches for transportation and logistics companies. Being in the transportation business can be costly because of the need to pay for different expenses like drivers, trucks, repairs, and fuel. These expenses can add up very quickly making it difficult for a growing company to keep up with expenses. To make matters worse, transportation and logistics companies are often paid on 30 or 60 day invoices. Since the immediate expenses need to be paid up front for the delayed income that will usually be collected from invoices 30 to 60 days later, transportation and logistics companies must be able to make effective use of financing.
Large companies usually have access to cash reserves, business loans, and other forms of financing to weather such cash flow shortages. However, in most cases small transportation businesses do not have access to these forms of business financing. This can leave your business strapped for cash and unable to continue to grow operations. So how can a small transportation company overcome their cash flow management problems so they can continue to fund growth?
One solution that works very well is called freight bill factoring. Never heard of freight bill factoring? Freight bill factoring companies buy your invoices at a small discount, providing upfront payment. This eliminates the wait for payment and allows you to pay your business expenses as they are incurred, leaving cash available to grow operations.
Freight bill factoring companies usually pay for 90% of the invoice upfront, and the remaining 10% upon payment received from the original customer. This kind of financing is available to small businesses, partly since the freight bill factoring companies are buying the invoices rather than lending money. This means that their biggest concern is the creditworthiness of your clients rather than the usual criteria to receive a loan.
The cost of freight bill factoring is dependent on the credit worthiness of your clients, the length of time the invoice will be outstanding, and monthly sales volumes. Therefore, companies with credit worthy clients, shorter invoice outstanding times, and high sales volumes will have lower costs.
Aerofund Financial, Inc focuses on freight bill factoring which will get you the highest advance in your industry. “How Invoice Factoring Can Help Your Business” explains how factoring companies such as Aerofund will benefit your small business. Personal service is assured no matter the size of your account.
 An online survey recently conducted by the New York Federal Reserve Bank concluded there is unabated demand for loans to meet the credit needs of small businesses. Out of all small businesses queried in New York only half of the number of small businesses that applied for loans actually received them. Even then, three quarters of small businesses that did receive loans stated that their full borrowing needs had not been met.
The online survey consistently showed through gathered data from small businesses that borrowing money was declining among small businesses. The volume of loans had dropped by almost 6 percent or about 45 billion dollars since 2008. The Federal Reserve survey data suggested that this obvious contraction was not being driven by small business borrowers but likely deteriorating conditions in the small business industry in New York. Almost two thirds of businesses surveyed in New York reported sales declines since 2008. Further, small businesses that succeeded in obtaining credit showed sales gains during the recession or were able to use profits to fund the business.
The data gathered from the online survey went on to suggest that while the health of a business was a factor in loan approval it was not a factor when small businesses considered applying for a loan. Both healthy and stagnant businesses with declining sales applied for loans at about the same rate. The data clearly cast doubt on theories that it was the weaker small businesses that were driving the demand for loans or credit.
Statistics garnered from the survey showed a 63 percent approval for loans to purchase new vehicles and equipment. The data also shown an approval rate of 46 percent for personal credit cards and yet only 20 percent of all loan applications were approved for traditional business loans. New business credit lines however did show an approval rating of 27 percent. The survey further suggested that banks instituting the new “second look” program along with technical assistance is helping small businesses to obtain needed loans.
The New York Federal Reserve’s findings from the survey have generated some controversy in that the survey contradicts previous surveys conducted. For instance, the National Federation of Independent Business survey concluded that borrowing and lending was down simply because businesses were not interested in borrowing money at the present time according to their member’s survey.
Aerofund has recently expanded their services to focus primarily on accounts receivable lines of credit as discussed in a previous blog “Accounts Receivable Factoring-The Small Business Solution“. We also offer other lending solutions such as “prime plus” programs patterned after bank lending, lower interest rates with Account Receivable management services, and 24/7 “online” reporting. Aerofund’s services may be a good alternative to a traditional loans discussed above. For small businesses that are constantly waiting on past due invoice payments, Aerofund Financial, Inc could be the perfect solution.
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