Debt Doesn’t Have to be Part of Your Growth Strategy

While the concept that businesses need funding to grow isn’t anything new, the idea that a successful growth strategy doesn’t have to involve taking on debt often seems to be. Accounts receivable financing is not only a debt-free form of financing for companies with outstanding invoices, but it also improves a company’s balance sheet and removes the time-consuming and expensive process of following up on invoices.

Historically, staffing has served as an excellent economic indicator,as economic and employment trends in the industry are typically seen in advance of nationwide shifts. As the economy recovers from the recession, staffing employment has consistently outpaced overall economic growth. That being said, access to working capital is still a source of woe for many companies, with lending remaining far below pre-recession levels.

In the staffing industry, gaining one new client can represent a significant increase in revenue, or even double business. Working with a lender that provides accounts receivable financing gives staffing companies freedom to grow as quickly as opportunity arises without taking on debt to cover growth-related costs such as payroll, marketing and operational expenses. In comparison to a traditional loan or line of credit, accounts receivable financing does not come with monthly payments, and the facility can often be raised or lowered as the ebb and flow of staffing changes, ensuring the funds you need to meet payroll and cover expenses are always there.

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But what is accounts receivable financing? Is it right for your company? Very simply, financers that provide accounts receivable financing take control of a company’s outstanding invoices and provide the company with up to 90 percent of payment owed up front. The financer then handles the collections process, taking the burden off the business owner. After the financer receives payment on the accounts receivable, the company is paid the rest of the money owed minus commission. There are two main types of factoring: non-recourse and recourse. Non-recourse means the financing institution purchases a company’s accounts receivable and assumes the risk of customer credit. In recourse, the financing institution is assigned invoices, but does not assume credit risk.

Accounts receivable financing is a great option for business owners in the staffing industry, as it is of little risk and offers a variety of benefits to business owners, including relieving the burden of the collections process.Additionally, obtaining a bank loan after approval can take up to two months, whereas accounts receivable financing companies provide businesses with working capital in just a few days. Lastly, companies providing accounts receivable financing can provide credit information on a business’s customers – insight a traditional bank loan cannot offer. In an industry where growth is constant, debt shouldn’t have to be.

MORE: Survival of the fittest: Staffing firms need flexible funding for stability and growth

Sue Duckett

Sue Duckett
Sue Duckett is managing director of CashFLow Direct (a Bibby Financial Services company).

Sue Duckett

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