Financing Account Receivables and Animal Odd Couples

Last night I watched a movie entitled, “Animal Odd Couples”.  There was a woman in the movie whose life had been changed forever by taking in and caring for animals who had been injured in some way.  She had a very old horse who was blind, and she was considering putting the horse down; but, she had an idea of something that might work.  She put a goat in the paddock with the horse.  The goat and the blind horse bonded and the goat would lead the horse wherever he needed to go.  Everything worked out great for the horse, as well as for the goat.  Her idea sprang from the simple reality that no one knew her animals better than her.

If you are a business owner there is a very high likelihood that no one knows your business better than you.  If you own a successful business but find yourself leaning back in your desk chair and staring at the ceiling wondering how you can purchase more inventory, or implement a new marketing strategy, or pay quarterly taxes in a timely fashion, no one needs to tell you that you have a cash flow problem.  You know this only too well.


What you might not have thought of is that the accounts receivables  you are currently holding can be sold to create immediate cash which your business needs to grow and thrive.  Let’s say you own a jewelry business, and you have accounts receivables in the form of retail installment contracts. Instead of waiting a year or two or even three years to slowly receive monthly payments on your accounts receivables, you can sell those retail installment contracts to provide the capital your business may need for pivotal projects that can define your meeting immediate business goals as well as achieving the future success you desire.


Selling your consumer accounts receivables is a form of factoring, and factoring has been around in one form or another for about three thousand years.  Factoring has grown in the United States as well as around the world.  Even with interest rates where they are, factoring continues to fill an ever widening gap in the financial structure of our country, all the more so as it relates to restricted bank financing.


In the past, factors have contributed to the growth of our national economy by providing financial services to small and medium-sized start ups and young growing companies that have needed capital to expand.  As a small business owner, you would know better than anyone if enhancing your cash flow through the sell of some of your consumer accounts receivables could help you become more profitable.  


The basic need for factoring started from merchants granting beneficial trade credit to their customers.  The concept of trade credit has been around for over 3,000 years.  Trade credit refers to the a merchant selling merchandise to a customer and then allowing that customer time in which to pay for the merchandise.  Trade credit stimulates trade and increases sales and profitability for the merchant, because the purchaser purchases more when he knows he can in turn sell the merchandise he has purchased for cash before he himself has to pay for what he has purchased.  All of this is referred to as a self-liquidating transaction.


However, during the time period in which the merchant has sold his goods and has not received payment on those goods, unless he has sufficient working capital in reserve he may not be able to acquire more merchandise to sell to future customers . . . and that can be a very serious problem.  When a small business owner sells his consumer accounts receivables

to generate working capital to meet the needs of his future customers, this problem is addressed.  Whether or not this is a functional model, depends on the business owner’s knowledge of his business and his perception of his financial situation, since no one knows his business better than he does.