Thus we will use intuitive framework, peppered with some economy. Why? Intuitive analysis is ideal for answering specific questions; in this case ' are the best company that will allow me to manage rapid changes towards the conditions of competition and economic survived in a game? '
And I will use the economy since Steven Levitt, Economist of the most remarkable in America under 40 years of age, who, along with Stephen Dubner considers that ' if morality represents how we want the world to work, then economics represents how in fact the work was successful.
By speaking on a specific anchor point, strategic issues affecting access to capital issues can be explored and developed initiatives to allow for a timely solution. In short, this is the fastest and most accurate answer to the question you are facing, because it is more easily understood and is not jammed in the analysis of the foreign and unnecessary.
One of the main points in the contemporary business is access to capital, especially when it helps maintain free cash flow. In many respects they are one and the same thing, the difference only because access to capital is a necessary precursor to free cash flow (you can not use it until you have it).
Everyone needs it. Payroll, material, overhead, and debtors that take between 45 and 120 days to complete their account, use your company credit line in lieu of.
Access to capital is becoming a bigger problem in the business environment described earlier, where speed to market and the ability to ' tool-up ' (improvement production) is very important to meet the delivery timeline is shrinking.
Many of us have felt the joy was awarded a large tender, something that will fill the order book for the next six months, immediately followed by the hangover that comes with the realization that the company would struggle to fund projects based on the estimate. And cash flow.
Small to medium enterprises face special problems when it comes to cash flow and access to capital to finance operations is growing, to the point where the lack of access is a problem that could threaten the ongoing operation, even in the emerging markets. Balance sheet takes time to build up, and this is contrary to the security that will be lent by the bank.
Develop initiatives to overcome this problem involves a look at some of the options that exist and make a comparison, the most on the decision to allow the solution to the problem at hand. In this case, the comparison of bank funding against invoice factoring gives insight on possible solutions to the problem of access to capital/cash flow.
Everyday economics can tell this comparison, especially the study of incentives-how people get what they want, or need, especially when other people want or need the same thing. Let's start with the bank.
Requirements for the granting of bank loans and limit the invasive nature, often give rise to the feeling that you have to ' bare all ' to borrow a nickel. They will of course refuse this claim, but let's get back to incentives - what are their incentives to lend you money?
That is to get the results of your efforts. Of course there is nothing to this deficiency, and then they also use the loan as a lever to win ' share of wallet ' biggest rival you from them, try to make you as a customer for life, ' grow with you and your business. ‘When you add the fact that people who need credit the surplus in the market, they were able to become voters and doing risk aversion economically-rational.
Risk aversion pushed the bank to place a mortgage on your home to make sure they get paid, and this encourages them to lend against a strong balance sheet. They see the balance sheet in accounting mode, whereas a real asset can be realized, such as liquid cash and real property, applying the formula and lend in accordance with how the results stack up against their risk matrix. Your success is sustainable only appealing to them as far as allowing you to serve (and ultimately pay) your debts, generate sustainable margins on their investment.
The description is too simple, the point is to illustrate that all this takes time, and is regulated around the weighty rules and limitations of evaluation. A lot of time, and many rules apply. First, for you to build your balance, and secondly, to make it appreciated to the point where your banker can open or extend the credit facility.
During that time, the window of opportunity to fund major projects, expansion of manufacturing, or operating in markets that are rising quickly passed, makes you run out of money the cost of application and if successful, serve a larger debt that you might not need.
Turning to factors invoices, incentives may seem the same, but how they see their profits a bit different. While the banks rely on their sharpness accurately predict your ability to pay off debts, invoice factor rely on their expertise to assess accurately the ability of your customer base to pay you.
The risk of negligence is felt to be lower by the small factor of the instrumental invoice, but how these factors perceive situations that are different from traditional loans. To get started, identify your account as an asset, like a bank. The difference is that the accounts receivable invoice factor you are considering with an asset can be realized quickly, and is ready to buy the right (and risk) to collect your outstanding invoices.
In other words, economic factors invoices to recognize Your accounts receivable as an asset with value of the future cash flow conditions, and provided that the assessment of their impact on your customers is profitable, they are ready to effectively ' market ' to provide such assets. This ' market ' closed with your transaction that sold them the invoice; there is no secondary market like junk bonds or other derivatives.
Access to capital through a factor is more expensive than traditional loans, and this is because there is no risk premium attached to you, but your customer base. This is not surprising, and you and I probably will do the same thing. Back to our incentives and studies economic, rational people who require premium for each extra unit of the risks they face.
A bigger incentive to risk that is considered higher. In the case of factoring, the premiums are higher than the interest rates of bank loans are equivalent, because the risk is slightly higher when security is not real property, but rather a claim first position over all your accounts receivable. Your risk of exposure lower than collecting the receivable itself (a very nice invoice factor in trade operations)-higher fees charged by banks compared with the factor only the premium you have to pay to lose such exposure.
The difference is the speed factor is given access to capital, and what happens when you default. Default on a bank loan, you could lose your business, even the family home. Factoring is not quite drastically, even though the amount of money involved is always smaller.
There are two types of factoring products available, recourse and non-recourse, and once again, the difference comes to the assumption of the risk premium, and is asked to bear the risk of non-payment on the invoice. With factoring, you remain liable for not paying by your customers, and with non-recourse, the factor assumes the risk until a certain point, and with higher premiums.
In short, there are advantages and pitfalls both in traditional and factoring loans. These are turbulent economic times, and have been burned a few times during the boom of the previous two decades, banks are much more risk-averse, strict Government holds on their credit standards.
So, given this information, we went back to our issues, seeking to answer the question: ' which is the best approach of providing the flexibility I need to allow me the opportunity to thrive in a business environment Quick change? "
For many businesses, the answer lies in factor invoices, which provides more than $1 trillion credit throughout the continental United States. As with all business situations there is a warning, or described in any other way, the settings if not constantly monitored can become a comfortable security blanket may actually slowly strangle you.
It's easy to get used to access cash flow through factoring. Also it is easy to feel comfortable knowing that you are supported by major public institutions such as your bank. Management and small and medium business owners must constantly remind themselves that a study of incentive also worked for them.
Review and constant funding arrangements regarding your cash flow is very important to ensure that the agreement you are dealing with is the best for your company, and not the other. This is all about getting what you want, or need, especially when other people want or need the same thing.
Tag : Small Business