Supply Chain Strategies: Utilize Factoring Services to Strengthen Links
Things have changed pretty drastically in the world of commercial financing over the past couple of years, forcing drastic changes in small business financing as well—both yours and the companies you sell to. Just as importantly, the business of your suppliers has also changed.
Successful companies need to adapt to what Roger McNamee calls "The New Normal." As McNamee proposes in his blog, "Wake up and smell the coffee. This is not your father's economy. And it's not the boom that inflated our expectations and then exploded. But it's also not the doom and gloom we've been mired in for nearly three years now! So, wake up. Pull yourself together. Get on with it. ‘With what?' you ask. With the rest of your life. It's a bright, fresh world full of opportunities."
Sounds terrific. But how do you get to this "bright, fresh world full of opportunities" when the telephone keeps ringing with calls from your creditors? What good is a purchase order if you will not be able to supply the product or service that will generate that profitable sale to your customer? Likewise, what good is a sale if you can't collect the proceeds?
Many businesses are struggling to pay their bills on time during this financial crisis. Responsible managers must maintain the quality of their earnings and assets by keeping their accounts receivable current, but they also need to maintain the goodwill of their vendors so they can refresh their stock with the merchandise or services their customers need.
Small to medium-sized firms, in particular, are feeling a pinch, since they do not have the access to capital that many larger companies still do. That is why successful entrepreneurs will concentrate on building strong links with their customers and vendors. A strong supply chain has always been important in business, but the New Normal has made it absolutely crucial.
Factoring Services and Your Supply Chain
Many B2B entrepreneurs are finding that factoring services are a great way to help them build a strong supply chain. Factoring companies can support your supply chain in four crucial ways.
1. Using the factoring service's credit department can help you assess if a customer will be a suitable partner in your supply chain.
2. Factoring invoices provides quick access to cash, as opposed to waiting for the conversion of accounts receivable into cash.
3. This quick access to cash can put you in a position to negotiate increased credit lines from your vendors and possibly even receive early payment discounts.
4. You may experience an improved turn on your "Days Sales Outstanding" with a factoring service professionally managing your accounts receivable.
Choose a Factoring Service Carefully
In choosing a factoring company to work with, it is important that you consider the ability of the company to support your supply chain. The continuing credit crisis has impacted many commercial finance companies. Will your factor company have the ability to provide you with the liquidity necessary to be a key link in the supply chain between your customers and vendors?
Also, some analysts are concerned about the condition of many of the non-bank lenders that are still operating, so don't hesitate to investigate a prospective factoring company's background, reputation and abilities.
Vendors, financiers and customers are important allies who should forge strong links in pursuit of each other's mutual success. Careful consideration of the needs of your partners can help you better fill the needs of your customers. In doing so, small to medium-sized business can not only survive, but thrive, in this New Normal Economy.