Of course these stats are no surprise to business owners.  Rebuffed by banks, they increasingly turn to factoring and purchase order financing for cash flow needs. The New York Times recently ran an article on the shift, highlighting individual companies that used purchase order funding last year when long-time bank loans had left them standing solo at the financing alter.

This alternative business financing market increased an astounding 80% in 2009 for one of the purchase order funding companies interviewed.

The article, entitled The Places They Go When Banks Say No, (by Andrew Martin, January 30, 2010) can be read at NYT online.

Purchase order (PO) funding provides a cash advance so the business can pay the source company manufacturing the goods. This allows the business to obtain the product, or materials needed to create the product, that will ultimately be delivered to the customer.

On the other hand, factoring provides cash through the purchase of invoices or accounts receivable at a discount for services rendered or products already delivered. Factoring involves funding after performance while purchase order financing requires funding prior to performance.

Both factoring and purchase order funding are in demand during the credit crunch providing opportunity for cash flow brokers and investors. To learn more be sure to read How I run My One Person Factoring Business, by Jeff Callender.

Every business has cash flow needs but options are dwindling in the face of a recession.   Fortunately savvy business owners know they can still raise cash when banks say no to business financing.

It is helpful to understand why more businesses are benefiting from factoring their invoices and account receivables in 2009.

The key to many of the benefits that accompany factoring is the distinction between selling an asset and obtaining credit.

Rather than a bank loan, the business sells the right to receive payment on outstanding invoices to a factoring company (See How Accounts Receivable Funding Works for more information).  

Here are the top 10 benefits to factoring invoices:

1. Obtain Cash Without Debt
2. No Credit Limits
3. No Long Term Contracts
4. Use of Funds is Not Restricted
5. Pick and Choose What Invoices to Factor
6. Strong Financials not Required on Business
7. Available to new and non-bankable businesses
8. Avoid Extending Invoice Terms to Questionable Customers (Most Factoring Companies will Underwrite the customers ability to pay)
9. Low Factoring Fees
10. Receive Cash Fast (usually within 24 hours on established accounts)  

By not increasing debt and freeing up much needed cash, it’s easy to see why so many businesses are using factoring to pay bills, fund growth, increase sales, meet payroll, maintain a good credit rating, or take advantage of early payment discounts.