Whether you work in the factoring industry as a direct funder or consultant, we all know that quality customer service is a cornerstone for any company’s long term success. Lately however, it seems that customer service is measured more on speed than any other factor.

Factoring Company Due Diligence vs. The Need for Speed

As important as speedy funding is to the customer, thorough due diligence is even more important to the funder. So often we receive calls from brokers and prospects requesting funding in a day or so to meet payroll or pay a supplier.

Sound familiar?

As much as we would like to fund every prospect that comes to our company, there are several extremely important questions that every factoring company should ask early in the due diligence process:

• How long has the client been in business?

• Can they provide current financial statements and tax returns?

• Are there any UCC-1 financing statements in first position on the client?

• What is the credit history of both the client and account debtor?

• How is the client’s company organized?

• Can the client provide an aged invoice schedule for the customers they would like to factor?

These are just a few samples from our company’s due diligence checklist. Depending on the type of industry being factored, a factoring company’s checklist may vary.

Our experience on gathering these types of documents can range anywhere from two days to a few months. Much of the process is dependent on the willingness of both the client and account debtor to provide the information requested in a timely and presentable manner.

Solving the Factoring Puzzle

A colleague of mine compared the due diligence process to putting together a puzzle that never gets fully completed. You try to get as many pieces of the puzzle to connect in order to form a clear enough picture to move on to the next step.

In the race to get every deal funded, you will find many factors will try to slow the process for very good reason. Unlike banks and other secured lenders, factors advance cash to qualified clients based on a piece of paper in the form of an invoice.

Sure, the returns are high and so is the risk.

So next time the factoring company asks for some more information to get the prospect qualified, understand it’s not always the first one to finish the race that comes out the winner.

Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California.

For more information, he can be reached at don.dambrosio@oxygenfunding.com or you can visit his company’s website at www.oxygenfunding.com

You have a client in need of cash flow who has been in business for a year, has three large customers and gets paid in less than 30 days. Eager to help this entrepreneur get the cash he needs to expand, you refer this small business owner to one of your factoring partners immediately.

The factoring company tells you that they are interested in pursuing the lead, and they’ll have an update for you as soon as they reach out to the prospect. The next day, you get a phone call from the factoring firm telling you that they are no longer working the deal.

Has this ever happened to you? If you answered yes, then I have some good news for you. There’s a simple way to drastically reduce the chances of the above situation ever happening again. All you have to do is ask three key questions before referring a lead to a factor.

#1: Have Your Receivables Been Pledged as Collateral to Another Lender?

The answer to this question can dramatically change how a factoring company views a prospect. Simply put, if the answer is ‘yes,’ the deal just got less interesting.

In order for a factoring company to purchase invoices, it uses the company’s accounts receivables as collateral. If the business owner has a loan (or is working with another factoring company), then that lender has most likely already filed a UCC-1 and claimed the borrower’s accounts receivables as collateral. (NOTE: A UCC-1 is a legal document that a creditor files to give notice that it has an interest in the personal property of a debtor.)

Discovering that a potential factoring candidate has a UCC-1 is problematic for a new factoring firm because it cannot fund on invoices if another entity is already entitled to them. In some instances, a factoring firm can structure an agreement where the previous lender is willing to release its ownership rights on the receivables, leaving them clear for the new funding source to use as collateral.

#2: Do You Owe Any Past-Due Taxes?

If your prospect answers ‘yes’ to this question, the next thing you need to ask is by how much? In general, a business that is behind on its taxes is not a good thing. However, how much or how little it owes will give the factoring company a better idea of how invested it would like to be in the deal.

When the IRS learns that a business is behind on its taxes, it files a lien on the company’s assets, including physical assets (property, computers, fax machines, etc.) as well as liquid assets (bank accounts, accounts receivables, etc.). This is the IRS’s way of getting a business owner’s attention because if the owner doesn’t pay the IRS what is owed, the next step is to levy on those assets.

When the IRS goes through with the levy, it claims the accounts receivables and other assets to compensate for the back taxes. In this situation, a factoring company cannot fund because the accounts receivables no longer belong to the factor. In other words, when the IRS levies on a company’s assets, all of the payments for the receivables which the factor initially purchased now go to the IRS instead of the factor. Translation – The factor never gets paid what it’s owed.

There are some situations in which the prospect, factoring firm and IRS could arrange a payment plan when taxes are past due. However, in general, if a company owes the government money, the risk level is usually too high for a factoring firm to want to stay involved.

#3: Who Are Your Customers?

Factoring brokers should pay very close attention to how their prospects answer this question because there are a couple of “entities” that simply cannot be factored. In a nutshell, the accounts receivable factoring model works best when smaller, less-established companies are selling to or providing services for larger, creditworthy companies. As such, a factoring firm is able to extend credit to the smaller entity, which may have little or no business credit history, based on the fact that its customers are financially sound enough to pay their bills in a timely manner. This ideal factoring model breaks down any time the above conditions are not met.

The most common factoring deals that get turned down immediately because of who they bill are companies that are paid by private consumers and extremely slow-paying clients. For the latter example, it’s important to note what the standard industry payment terms are to determine if the customer is a slow payer. For example, in the medical staffing industry, it’s typical to see net-60 terms, whereas in another industry, net-60 might be considered too past due to purchase.

Incorporating these questions into your initial information gathering process will help you weed out some of the less desirable deals before you approach a factoring company, saving you, your prospect and the factor some time and effort. It will help the referral process run more smoothly, and it will help you better understand your clients’ current financial state so that you will be better equipped to help them with their cash flow.

Nikki Flores is a Consultant Liaison for PRN Funding, LLC, which is an extraordinarily focused niche player in healthcare factoring.

PRN Funding exclusively factors the accounts receivable of companies that sell goods or provide services to healthcare providers.

Over the last year I’ve had the privilege and pleasure of writing several articles for Factoring Investor on the topic of how you can get involved in the factoring business.

In my July 2011 article, “Starting Your Own Factoring Business”, I discussed several resources to consider if you wanted to pursue your own factoring business as a direct funder. In our November 2011 article, “A How To Guide for Factoring Brokers”, we discussed selling points for brokers to use when approaching potential clients in need of cash flow. We even went as far to supply an instructional guide to help new brokers better understand the industry.

Fast forward to today and I am happy to report that we have received tons of feedback from interested parties wanting to get involved in the factoring industry. I can also report there are some fantastic folks out there which makes me feel confident that our industry’s best days are ahead of us. However, I do feel the need to address several recurring questions that I receive from both new brokers and funders.

1. Where do you find new clients for factoring?

This isn’t always the first question I receive but I can tell you it comes up in almost every conversation. Listen, if there was a magic wand to wave that could find new clients, we would all have one.

Your marketing plan is crucial to your success and it will either make or break your factoring business.

It doesn’t need to be a formal plan consisting of hundreds of pages of text with graphs and charts, but you do need a path to follow or you will get lost very quickly. Maybe you have experience with a specific industry or maybe you prefer to work with a particular client profile.

No matter what path you choose, find your niche and figure a way to penetrate it. There are endless resources you can utilize on the internet to research industries, markets, planning, you name it. It is up to you to figure out how to reign in this information and put it to use to grow your business.

2. Can I work in the factoring business part-time?

Of course you can. Although, I find this option is more suited for brokers than direct funders.

Our company’s experience has taught us that clients are demanding and rightfully so. While our office hours are typically Monday through Friday, I cannot tell you how many emails and calls we answer after hours and on weekends. When a business owner is trying to get his invoices funded to cover that week’s payroll you can understand why they are trying to track you down. Conversely, your company may have a limited number of clients or you only fund on certain days of the week. If this is the case, you may be able to manage your book of business on a part-time basis as a direct funder.

 3. Where do you go to find more information about the factoring business?

For those new to the factoring industry there are many associations, professionals and publications that provide educational guidance and useful information about the factoring industry.

To start, “Factoring Investor” is a great resource for information about the factoring industry. There are fantastic posts from “Factoring 101” with different points of view from a variety of experts in the industry.

The International Factoring Association is another great resource. They have a huge library of materials you can purchase for your business from legal documents to recorded teleconferences that can be downloaded.

Finally, I would recommend reading a series of books written by Jeff Callender collectively called the “Small Factor Series”. This series is made up of six books that pretty much tell you what you need to know about factoring account receivables.

At the end of the day it is up to you to determine how far you would like to go in this business. From my perspective there has never been a better time to get involved in the invoice factoring business. Chart your own course, plan accordingly and most importantly, enjoy the ride.

Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California.

For more information, he can be reached at don.dambrosio@oxygenfunding.com  or you can visit his company’s website at www.oxygenfunding.com.

Typical vendors who benefit from invoice factoring include: temporary medical staffing agencies, medical transcription services, janitorial companies, and even medical supply companies.

All of these businesses routinely provide services and/or sell goods to medical providers and then have to wait weeks or months to be paid. However, there is another type of vendor that can benefit from invoice factoring that you may not know about—Outsourced Medical Billing Services.

Medical billing is one of the fastest-growing and most dynamic sectors of the healthcare industry. In a nutshell, providers wouldn’t be able to get paid by third-party insurance if it weren’t for medical billing. Because the medical billing preparation and submission process is an immense task, so many medical providers choose to outsource their medical billing. Therefore, outsourced medical billing services act as intermediaries between medical providers and insurance companies.
Of course, medical billing companies charge a fee for their services. Typically, a medical billing company charges a percentage of what the medical provider collects from insurance companies. Moreover, a medical billing service strives to submit claims quickly and correctly to the insurance companies to ensure a speedy reimbursement to the provider.

So if an outsourced medical billing company works hard to get the provider paid quickly, it only makes sense that the provider will pay the medical billing company quickly as well, right? Unfortunately, this is not always the case. Hence, it’s not uncommon for outsourced medical billing companies to run into cash flow problems. Enter outsourced medical billing invoice factoring.

Even though you may not be familiar with the outsourced medical billing industry, the factoring process is virtually the same:

1. The outsourced medical billing service submits an invoice to the factoring firm.

2. The factor verifies that the billing services were performed, and in some cases, verifies that the medical provider has received payment for the processed claims listed on the invoice.

3. Once the factor is comfortable with the verification, it purchases the invoice and funds are advanced electronically to the outsourced medical billing service.

4. When the factor receives payment from the medical provider, it applies the factoring fee and releases the rest back to the medical billing company.

It’s easy to see how these unique medical vendors can benefit by factoring their invoices. The most important thing to remember is that outsourced medical billing factoring is the perfect way for a new or growing business owner to maintain a healthy cash flow. Rather than wasting time and resources chasing providers for prompt payment, outsourced medical billing business owners can factor invoices to access capital immediately. Then he/she can use that incoming cash to focus on business growth efforts.

Keep in mind that as the medical billing industry continues to grow, more players will certainly enter the market. As more outsourced medical billing companies pop up, their need for financing will also increase. When reviewing potential factoring candidates, factoring brokers should definitely include medical billing companies in their portfolio.

Nikki Flores is a Consultant Liaison for PRN Funding, LLC, which is an extraordinarily focused niche player in healthcare factoring.

PRN Funding exclusively factors the accounts receivable of companies that sell goods or provide services to healthcare providers.

What differentiates a factoring company from a bank?

First and foremost, since factoring is not a loan, there is no debt on your company’s balance sheet. Moreover, factoring firms have the ability to make a quick decision regarding your medical billing funding options, while banks may take weeks-even months-to approve a loan.

Furthermore, factors determine lines of credit based on the creditworthiness of your customers, while banks focus on your company’s financial history and cash flow. In other words, a funding agency looks to your company’s future while banks place emphasis on your company’s past.

How long does it take to be approved for factoring funding solutions?

In general, a funding agency will begin its due diligence process after receipt of a signed contract. This process can last anywhere between 1-5 business days, and money is moved at its conclusion. Thereafter, a company can receive funds in as little as 24 hours within verification. See our factoring process and learn our medical billing funding options can benefit your business.

What information does a business owner need to provide to a factor in order to begin the process of coming up with funding options?

Required paperwork varies among factors, however, there are a handful of documents that most all will expect. Most likely, the owner of a medical company will be asked to provide a copy of your company’s most recent accounts receivable and accounts payable aging reports, Articles of Incorporation or Organization filing, copy of owner’s driver’s license, voided copy of a check, a master customer list, a sample contract, and of course, invoices to factor.

What happens if my customers don’t pay an invoice?

This depends on whether your company entered into a non-recourse or recourse agreement with the factor. Within a non-recourse agreement, the funder assumes the credit-related loss. However, most medical billing solutions (factors) do not assume the risk of non-payment due to disputes regarding quality or timeliness of your company’s medical billing services. On the other hand, if you have a recourse agreement, your company will have to reimburse the factor for any unpaid invoices. This is usually accomplished by having the past due invoice deducted from the next advance or replacing it with another factored invoice.

Can a medical billing service qualify for funding if it’s a new business or has past credit problems (i.e. bankruptcy, IRS liens, and judgments)?

Yes. A reputable medical billing factoring company will still consider your application if you have credit problems or a recent bankruptcy because the credit decision is based primarily on the creditworthiness of your customers. However, tax problems are handled on a case-by-case basis, so be sure to let you funder know if you have any IRS issues.

Philip Cohen is the founder and president of PRN Funding, LLC, which is a focused player in the medical invoice funding marketplace. Through a process known as factoring, PRN Funding provides medical business owners with the financial resources needed to grow and effectively compete in the industry. With no minimums or fixed terms, PRN Funding (http://www.prnfunding.com) provides medical companies with flexible and immediate access to capital.

Article reprinted with permission by PRN Funding, LLC.

Every business owner wants to succeed and have their company flourish which is why we took the leap of faith in the first place. Sometimes however, our actions or lack thereof can answer that question in ways that may surprise even the savviest entrepreneur.

Anyone familiar with the asset based lending industry knows there are numerous risks associated with invoice factoring. How many times have we heard from our salespeople,

“This prospect is a no brainer and we should be able to fund him in less than a day.”

Those of us that fund accounts receivable know that what may look like the perfect prospect could be your worst nightmare.

As I have previously written in our June 13th  article, “Factoring: Is It Always About the Account Debtor?” we all know that there is no substitute for good underwriting policies and procedures that focus your due diligence on both the client and the account debtor. However, besides focusing strictly on underwriting guidelines, every now and then common sense can play a very large factor in determining if a certain deal is right for you. Below are a few common sense suggestions you may want to consider before you send out that next ACH or wire:

1) Does the factoring deal make sense?

I realize this may sound foolish, but I cannot tell you how many times there are conflicts between what the prospect says and the paperwork gathered with the application. If you cannot understand the deal flow, run it by a colleague or professional in that field who may have more experience and continue to ask questions.

2) How long has the prospect been in business?

Even though the debtor has excellent credit, if your client has no track record and produces faulty goods or delivers shabby services, chances are pretty good that you will wind up in a dispute and not get paid.

3) Why is the prospect looking for a new factoring company?

Whenever a prospect is leaving a factor and wanting to start a relationship with a new factor, be cautious. The prospect has every right to shop around because they may have received poor customer service or they feel they can get a more competitive rate from another factor. It may be worth your while to put a call into the current factoring company to see if they could provide some background on the client. Even though it may be an uncomfortable call, you will be surprised how many times factors cooperate with one another in buyout situations.

4) Is it best to just walk away?

This is probably the toughest one of all. You’ve worked so hard to bring in this lead, gather the paperwork and the returns look amazing. Unfortunately, the deal just doesn’t fit your company’s profile. As a very good friend and colleague of mine once told me when I first started my business, “Sometimes the best deal is no deal.”

Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California. For more information, he can be reached at don.dambrosio@oxygenfunding.com or you can visit his company’s website at www.oxygenfunding.com

Way back in the day, (maybe six or seven years ago), most marketing plans consisted of an advertising budget, maybe some PR, a newsletter and occasional updates to the company’s website. Depending on the size of the company, a marketing director could spend a small fortune on a basic “shotgun approach” where they place ads in local papers or trade magazines and hope that someone found it interesting enough to purchase their product or service. Just scan through the daily mail you receive at your home or office and you’ll find flyers and postcards from companies trying to earn your business. I’m not saying these approaches are not effective, but with advent of social media, many businesses with little or no budget can market their goods and services in a very effective manner.

Unless you live under a rock, almost everyone is familiar with social media and how it has changed the way we communicate with each other. Social networking sites such as Facebook have over 750 million subscribers with each user having an average of 130 friends. From a business perspective, entrepreneurs and developers from more than 190 countries build with Facebook Platform. Twitter, which just celebrated its five year anniversary in May, has about 175 million subscribers that send over 456 “tweets” per second! There are many other forms of social media other than social networks such as podcasts, blogs, RSS feeds to name a few.

What makes this social media movement so exciting for factoring companies and other small businesses is that any company looking to get noticed can do so with little or no money. Setting up an account with Facebook, Twitter or LinkedIn is free and a very good place to start. On LinkedIn, start by joining groups within your own industry to keep track of the latest news and events. Create a Facebook page for your business and get your friends and colleagues to “Like” your page. On Twitter, go to the “Who to follow” section and search for people and companies with similar interests.

Just as it is import to be part of social media for your business, it is even more important to participate by posting information with good content. What exactly does good content mean? Here are a few general guidelines that I like to use before I post information on our website:

1. Post useful information – this may sound like a no brainer, but you would be surprised how often I come across posts from friends and colleagues with no real point.

2. Entertain – try not to be boring. Liven up your post with some humor, or a personal experience on how you might have done something better.

3. Be an expert – know your facts about the topic so your followers look to you as a resource when they have questions.

What makes social media appealing to so many businesses is that there is no barrier to entry, little or no cost and you can use it as much as you want. Not a bad deal at all.

About the Author: Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California. For more information, he can be reached at don.dambrosio@oxygenfunding.com or you can visit his company’s website at www.oxygenfunding.com.

Oftentimes, factoring prospects annualize the percentage charged by factors, extrapolating three percent per month to an interest rate of 36 percent per year. In the world of healthcare staffing financing, this scenario is like comparing apples to oranges.

When comparing a bank loan with invoice factoring, it’s important to keep a few things in mind:

• A factor does not loan money like a bank does. Rather, a healthcare staffing accounts receivable factor purchases invoices at a discounted rate. Factoring is a form of short-term funding, so a discount rate should not be converted to an interest rate. For example, some firms offer a two percent discount (2% for net 10) for quick payment. In a year, there are roughly 36 10-day periods. Using the annualized percentage parallel, that comes out to 72% “interest.” Are these companies really paying 72% for quick payment? No, and healthcare staffing factoring companies don’t earn 36% interest either.

• Moreover, a factor is continuously advancing and collecting funds, compared to a bank that provides the money only one time, the day that the loan is received. An accounts receivable factor has the ability to grow as its clients grow. Once a company uses the funds from a bank loan or exceeds its credit limit, there’s little room for it to grow.

• Banks approve business loans or lines of credit based on a company’s historical operating and financial performance, a factor’s main criteria is the creditworthiness of a prospect’s customers. Banks tend to shy away from business owners who are just starting up, going through seasonal growth, have bad personal credit or have too much concentration of their sales with one or two customers. Many factors are able to look past the above criteria because their decisions are based off of a prospect’s customers’ ability to pay. So it’s very possible for a business that has creditworthy customers to work with a healthcare staffing factoring company even though they have been previously turned down for a traditional bank loan.

• The loan process with a bank is time-consuming and cumbersome, and it could take weeks or even months to receive the loan proceeds. Whereas a factoring firm’s application and approval process can take less than a week, and factors have an ongoing ability to approve additional lines of credit quickly.

• Oftentimes, a bank loan requires collateral in addition to a company’s accounts receivable. The only collateral that a factor requires is the company’s accounts receivable. A bank will most likely require business owners to personally guarantee the loan as well, and factoring companies won’t always require a personal guarantee to advance money.

• Taking out a business loan creates debt on a company’s balance sheet, and credit ratings go down because of loan limitations. On the other hand, healthcare staffing funding through a factor increases credit ratings by creating better cash flow and helping the company pay their bills promptly.

• Whereas banks only loan money, there are a multitude of services that factoring companies provide their clients in addition to ongoing funding. Some of these supplementary services include: posting payments, dispersing reports, handling collections and reviewing credit for their customers’ clients.

When looking at the big picture, entrepreneurs have to weigh the costs of factoring against not having immediate cash. More often than not, the decision comes down to either selling the accounts receivable or putting up with crippling cash flow problems and missed sales opportunities.

Philip Cohen is the founder and president of PRN Funding, LLC, which is an extraordinarily focused niche player in the healthcare staffing funding marketplace. Through a process known as factoring, PRN Funding provides business owners with the financial resources needed to grow and effectively compete in the industry. With no minimums or fixed terms, PRN Funding provides healthcare staffing agencies with flexible and immediate access to capital. We give you the freedom to factor what you want, when you want, whom you want, for as long as you want. Prior to founding PRN Funding, Mr. Cohen was an executive officer of The MRC Group, a national provider of Medical Transcription Services. Contact Philip Cohen at toll-free 866.776.5407 or via email at pcohen@prnfunding.com. Please visit PRN Funding, LLC on the web at http://www.prnfunding.com/

Article reprinted with permission by PRN Funding, LLC.

Factoring Company Competition

Along with this newly found popularity, competition within the industry has increased and everyone wants to make a deal. Common slogans are,

“Same day funding since we base our approval on your client’s credit,” or “Even if your credit is poor, we can still get you funded.”

Conventional wisdom within the factoring industry has always stressed that deals of this nature can be funded since it’s the client’s customer (otherwise known as the account debtor) that will actually be paying the factoring company. For example, a small consulting firm with little or no credit can get funded as long as their customer is creditworthy.

While much of this long standing rule is true, should all the focus of your due diligence be solely on the account debtor?

Providing Factoring Services In Today’s Economy

As I mentioned earlier, the same current economic climate that has created opportunities within the asset based lending industry can also be your worst enemy. Unfortunately, many businesses needing factoring services have taken some tremendous hits over the last few years. We have seen industry declines in apparel, transportation, manufacturing and staffing to name a few.

If your prospect is in a declining industry and sales have slowed, generally, some bad things start to occur. Unless they have sufficient cash reserves (which most don’t otherwise they would not be calling you) vendor payments get pushed back, payroll may be late and taxes go unpaid. Many times your prospect may need factoring just to stay afloat until the inevitable happens and you are left holding the bag.

Dealing with a client who has just declared bankruptcy is the last place where you want to be as a factor. I am not a lawyer and if you ever find yourself in this position, I would suggest that you consult one as soon as possible.

Reducing Factoring Risks

While there are no exact formulas for you to avoid risky clients, there are several steps you can take in your due diligence to mitigate your risk and limit your exposure:

• Run current credit reports on your factoring prospect. There are numerous credit reporting agencies you can utilize that will provide as little or much as your budget can afford.

• Gather the most current quarterly and year-end financial reports available. If the client has audited financial statements, read the auditors notes to the financial statements. Also, look for trends on both the balance sheet and well as the profit and loss.

• Request the last two years of business tax returns for both the federal and state returns including payroll tax filings. If necessary, also request personal returns of the owner and or majority shareholders.

• Check with the state where the business is domiciled to see if they are in “Good Standing.” If a business is not in “Good Standing” or “Suspended” it usually indicates they are delinquent with their annual reporting requirements, have not paid their taxes, or have some other form of dispute with the state.

• If the prospect is required to maintain a license to conduct his or her trade, check with the local licensing board to see the license is current. If the license is suspended, you may not have a valid claim against the debtor or in the event of a dispute.

• Run a UCC-1 search to see if there are any liens against the business. This is extremely important since you as the factor will always want to be in first position on all collateral. In some cases there may be another UCC-1 financing statement already in place. This is not necessarily a negative indicator as the prospect may have an existing loan with a bank or equipment financing with another lender. In some cases the other secured party may subordinate their filing to allow you to be in first position on the prospect’s accounts receivable.

These are just a few basic steps you can take when performing due diligence on your prospect. Every deal is unique and your due diligence may vary according to the type of prospect and the industry in which they participate. Remember, no matter how well your Factoring Agreement between your prospect and you is written, as Benjamin Franklin so correctly stated, “An ounce of prevention is worth a pound of cure.”

About the Author: Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California. For more information, he can be reached at don.dambrosio@oxygenfunding.com or you can visit his company’s website at www.oxygenfunding.com for accounts receivable factoring.

Throw in the current economic climate, and the chance of an entrepreneur obtaining a conventional bank loan is slim to none. When loans are no longer an option, business owners have to find a short-term funding option to keep them from dipping into their personal savings accounts or having to rely on friends and family for operating cash.

Over the past decade, the main fallback has been small business credit cards. During better times, credit card companies actively pursued the small business market. Entrepreneurs were enticed with low introductory interest rates and high credit limits. In addition, banks started offering small credit lines to entrepreneurs who didn’t meet conventional loan requirements, and vendors started relying on the efficiency of credit card payments.

Needless to say, the small business credit card caught on like rapid fire. Today, nearly 60% of the nation’s small businesses rely on credit cards to help fund their daily operations, according to the National Small Business Association.

Yet as the economy worsens, entrepreneurs are seeing their interest rates going up and their credit limits going down. With credit card delinquency as high as 12 percent among small business owners, bankers and credit card companies say the only way to decrease the risk in their portfolios is to make some changes with their small business accounts. As a result, nearly three-quarters of small businesses have seen a large cut in their credit limits over the last six months.

Now that access to both bank loans and credit cards is hard to come by, where can the nation’s 27 million small business owners turn for funding?

Enter factoring…

Now more than ever, entrepreneurs across the nation are in desperate need of a factoring company that understands the intricacies of today’s funding marketplace.

If you think about it, the process of factoring receivables is very similar to using a credit card. For example, many small business owners use a credit card to purchase additional inventory and then pay down that bill as their customers pay them. With factoring, a business owner could just as easily sell his/her invoices to an invoice factoring firm and receive cash immediately on those invoices. In turn, they can use the cash to purchase additional inventory. In both instances, the business owner has readily available cash to purchase more supplies. In fact, the two funding mechanisms sound almost exactly the same.

However, there is one very important difference. When credit card companies and banks define a credit line and interest rate for a small business credit card, it’s based on the financial strength of the small business or its owner. During an economic recession, credit card companies view the normal ups and downs of a struggling small business as too risky.

However, with factoring, the credit decision is not based on the business’ credit at all. Rather, the lending decision is based on the creditworthiness of the company’s customers. Keep in mind that small businesses routinely sell to larger, more established companies. Because these companies are financially sound, they have the ability to continue paying their vendors, even during an economic decline. So in other words, when business owners use factoring, they can literally leverage the creditworthiness of their customers, which leads to lower fees and higher credit limits.

Now as I previously stated, there are 27 million small business owners in America right now who could be looking for another form of invoice funding because of the current state of the economy. Factoring is the perfect funding solution for those entrepreneurs who are unable to qualify for a traditional line of credit or are having difficulty negotiating reasonable rates on a small business credit card.

Philip Cohen is the founder and president of PRN Funding, LLC, which is an extraordinarily focused niche player in the healthcare factoring market place. Through a process known as factoring, PRN Funding provides financial resources for suppliers of services and products to healthcare institutions that are needed to grow and effectively compete in the industry. With no minimums or fixed terms, PRN Funding (http://www.prnfunding.com) provides medical business owners with flexible and immediate access to capital.

Article reprinted with permission by PRN Funding, LLC.