It’s a challenge every B2B business owner has faced at one point or another: those customers who pay invoices at a snail’s pace, causing your business financial hiccups of all types and sizes. At best these delays are simply aggravating or force you to move a little extra money around. In the worst case, though, serious cash flow disruptions can translate into missed payments to your own vendors, jeopardizing your business relationships and even the credit score you’ve worked so hard for.

Luckily, there are business financing options—like accounts receivable factoring—that can help smooth out your cash flow while your customers catch up. Accounts receivable factoring—also called invoice factoring—can be a great solution for small business owners who have incoming revenue on their balance sheet, but need to bridge the gap to getting timely payments.

How It Works

Essentially, accounts receivable factoring means you’re selling your outstanding invoices. An accounts receivable factoring company will buy your receivables by advancing you 50 – 90% of the amount of your total invoice, with the remaining 10% -50% held in reserve. When your customer pays in full, the company will pay you back the amount of the reserve, minus their fees.

Typically lenders will charge a 3% processing fee on the invoice amount, plus a 1% “factor fee” for each week the invoice remains outstanding. Some factoring companies will even assume your debt and manage collections on your behalf for an additional fee.

Accounts receivable factoring is a great option for the small business owner or occasional slow paying customers who need a cash injection to cover operational expenses.

Determining Your Eligibility and Rates

When a factoring company considers how much to advance or loan your company, they take several things into account. In most cases, the larger the invoice amount, the more value it represents and the better the deal you’ll be able to make. Since older invoices are harder to collect on, they are also less likely to qualify for accounts receivables factoring, or may come with a higher factor rate. Because of this, you’re best off reaching out to the factoring company as soon as possible after the account becomes delinquent.

Business owners can expect around 85% of their invoice value from factoring companies, with 15% of the invoice to be held in reserve.

Upsides

Accounts receivable factoring offers your business fast access to cash, even when customers are slow to pay. Although every situation is different, you can often get funds for outstanding invoices in as little as one business day.

Since your invoices themselves serve as the collateral on the loan, no extra collateral is required for accounts receivables factoring. And unlike traditional small business loans, lenders typically don’t require a pile of documentation and information about your business before you can be approved. They simply want to know that taking on your accounts receivables is smart business, so they are only concerned with your outstanding invoices. That makes accounts receivables factoring an attractive option if you have poor credit or have struggled to qualify for other small business loan types.

While not every factoring company does this, some will take on your debt and collect accounts receivables for you. This can be a major advantage if you are in a busy season or if you don’t have the in-house resources to manage collections.

Downsides

Although accounts receivable factoring has lots of upsides, there are also some disadvantages to consider.

When compared with other more traditional small business loan options, accounts receivable factoring is one of the more expensive ways to finance your business. Fast cash is often expensive cash, and this option is no exception.

Although accounts receivable factoring is uncomplicated, it does require you to relinquish some of your hard-earned profits, since you won’t receive the full amount your customer owes you.

For example, if your client’s outstanding invoice is $10,000, you’d be giving up at least $400 in order to collect. Even so, if you’re willing to part with that to access the other $9,600, then accounts receivable factoring may be the right choice for you.

When Accounts Receivable Factoring is the Best Choice For You

Customers who pay invoices at a leisurely pace impact your cost of doing business. Before doing business with a factoring company, you’ll want to make sure that cost is worth it to you and your bottom line.

Like any small business loan, there is no one formula that guarantees which loan is best for your business. That said, some businesses may benefit more than others in using accounts receivable factoring.

Accounts receivable factoring may be for you if your company:

• Has current, outstanding invoices
• Is a B2B model
• Offers payment windows between 30 and 120 days
• Sells products or services on a “final sale” basis. Factoring companies do not work with businesses that sell products on a contingent basis.

While any company with a B2B model can utilize accounts receivable factoring, if you are a trucking, manufacturing, distribution, staffing, or a commercial landscaping company, you may find this loan structure particularly in alignment with your business needs.
Accounts receivable factoring can be a good way to bridge the cash flow gap with slow-paying customers. As always, best practice is to ensure that this financing solution will not only ease your short-term cash flow crunch, but also make long-term financials sense for your business.

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Businesses set up as partnerships, legal entities where two or more people own and run a business, enable companies to benefit from multiple owners’ diverse knowledge, skills, and resources. A partnership is similar to a sole proprietorship, and each partner owns a portion of the business’s assets and liabilities.

With more than one person making decisions and affecting outcomes, different aspects of starting and running the business need to be addressed up front. Although not required, I strongly recommend that partnerships have a partnership agreement in place to detail the business ownership and responsibilities of partners. The clearer and more complete the agreement, the less that is up for debate or disagreement when partners don’t quite see eye to eye.

So, what should your partnership agreement include? Here’s a list of some key items you should definitely think about addressing in yours:

1. Contributions

Make sure you clearly lay out each partner’s stake in the formation and ongoing finances of the business. How much will each partner contribute to start the business and what will each partner’s responsibilities be for future needs? In your agreement, define what each partner will put forth—not only in the amount of money, but also with regard to time, effort, customers, equipment, etc.

2. Distributions

You’re all in the business to make some money and create and sustain a comfortable life, right? Your partnership agreement should detail how the partners will split your business profits? How much will each partner get paid and who will get paid first? Outline not only how profits will be distributed, but also define if each partner will be paid a salary (and of course how much that salary will be).

3. Ownership

What if something changes with regard to ownership of the business? If you sell it, which partners will get what? What is your partnership’s position on taking on new partners? If one partner wants to withdraw from your business, what happens then? What are the options for buying out another partner? Your agreement should carefully describe how ownership interests would be handled in various scenarios like those and others, such as in the event of any partner’s death, a retirement, or bankruptcy. And to protect your business from a partner leaving, setting up a new company, and stealing your customers, you should also consider adding in a non-compete clause. Better safe than sorry!

4. Decision Making

I can’t emphasize enough how important this is! Trust me, you and your partner(s) will not agree wholeheartedly about everything. You need to define how day-to-day management and long-term decisions will be made. Who gets the last say? Identify what types of decisions require a unanimous vote by partners, and what decisions can be made by a single partner. By setting up a decision-making structure that everyone understands and has agreed to, you’ll have the foundation for a more friction-free business.

5. Dispute Resolution

Ugh! No one wants to think about this, but you should. If things get ugly between partners, how will disputes be handled? Your partnership agreement should define the resolution process. Should mediation be the initial step? Will you require arbitration to settle differences? Keep in mind that if a dispute goes to court, lawsuits become part of public record. Setting up how you’ll handle disputes will take the guesswork out of navigating dissention.

6. Critical Developments

Sometimes, the unexpected happens. It’s what makes business so exciting—and unnerving at times. Your partnership agreement should address possible scenarios and concerns, such as:

• A partner getting sick or dying—What happens then?
• A buyout—How will the business be evaluated (and what is the split) if an offer is laid on the table?
• Retirement provisions.
• Circumstances under which you can modify your partnership agreement—and the process for making changes.

These are the most common issues. And there are numerous others you should think about.

7. Dissolution

Your agreement should also include what steps should be taken to legally end your partnership. You might opt to do this if you and your partners can’t agree on the future of your business. Also research what your state requires to dissolve partnerships. State law governs dissolution and your state’s website should define the process and provide the forms you need to complete.

How to Craft a Partnership Agreement

If you do an Internet search for “partner agreement template,” you’ll find a number of samples you might use as a starting point. I suggest getting professional legal help when drawing up your partnership agreement. That will ensure it’s as complete as possible. You’ll want a very detailed agreement that leaves no shades of gray, so each party understands the conditions and requirements.

Well Worth the Time and Effort

Yes, developing a partnership agreement takes some time and some money, but it’s well worth the peace of mind to know you and your partners are on the same page and have the same expectations and understanding about how your business will operate. After several discussions and just a little paperwork, you’ll have a contract that can spare you from potential legal battles and significant hassle in the future.

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If you don’t own a restaurant, do you need to worry about online reviews? You might believe that online reviews don’t really matter to your customers. You may think they’re not worth the time and trouble it takes to manage them. Or you may worry that one bad review will destroy your business.

Think again: Here are 5 good reasons why every small business owner should welcome—and actively encourage—online reviews.

1. The majority of consumers read online reviews. In a survey by Ask Your Target Market, 50 percent of respondents say that before making a purchase, they check online reviews “always” or “most of the time.” Another 25 percent do so about half the time. Just 16 percent rarely check online reviews, and only 10 percent never do.

2. Online reviews affect purchasing behavior. About three-fourths of consumers in the survey say online reviews are important to them. The importance of reviews, and how frequently consumers rely on them, varies depending on what you sell. For example, if you sell technology products, you should know that 70 percent of consumers regularly check reviews before making a tech or gadget purchase. Forty-six percent regularly read reviews for home items; 40 percent read reviews for restaurants, hotels or travel-related businesses; 35 percent read reviews before purchasing clothing or accessories; and 23 percent read reviews for local retail stores.

3. Consumers use a variety of online review sites. The most popular site for consumers looking for online reviews is Amazon. Even if you don’t sell products on Amazon, you should be aware that products you sell may be reviewed there. Also popular: Google, Yelp and even Facebook. In addition, customers may be reading reviews on local sites specific to your region or on sites related to your industry. In other words, getting reviewed on as many sites as you can will help your business.

4. Even though the majority of consumers read reviews, most don’t write them. Here’s the thing about online reviews: A small percentage of consumers are making an outsized impact on the rest. Just 6 percent of respondents in the survey say they always write online reviews after making a purchase. Fifteen percent leave reviews most of the time, and 24 percent do so about half the time. However, 35 percent rarely leave reviews, and 20 percent never do at all.

If you’re not encouraging your customers to write reviews of your business online, you’re missing out on a great way to gain perspective customers’ trust and get them to try your business. What’s worse, the few customers who do write reviews are having a disproportionate effect on what everyone else thinks of your business. Think about it: If hardly anyone writes reviews, one bad review has a much bigger effect than it otherwise would.

Here are some ways to encourage customers to write online reviews:

• Add links prominently on your website where customers can review you on sites such as Yelp.
• Use signage in your location, such as Yelp decals, to let customers know which review sites you’re featured on and where they can find you.
• Include language on receipts, restaurant checks or invoices saying something like, “Find us on Yelp.”

Of course, be sure to regularly read your online reviews and respond promptly to any that are critical.

5. Negative reviews are few and far between. Still worried about what customers might say about you? Don’t be: Nearly half (46 percent) of customers in the survey say their reviews are usually either positive or very positive. Just 3 percent say they frequently leave negative or very negative reviews.

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Every company wants to improve its business accuracy; however, mistakes are going to happen—it’s just a fact. When mistakes do happen, the following actions or inactions will take place:

• Nothing changes; therefore, the same mistake can, and probably will happen again.
• Someone needs to be blamed; therefore, the same mistake can, and probably will happen again. It’s not much different than when the company does nothing.
• A lesson can be learned from the mistake, thereby reducing the possibility that the same mistake will happen again. This obviously is the best option and promotes operational efficiency.

When a business reviews its past mistakes and proactively changes processes or procedures associated with the mistake, potential problems can be prevented from recurring in the future. Taking a proactive approach to mistakes changes the thought process from a temporary fix to a permanent fix.

The following are six approaches to eliminating or reducing mistakes:

1. Eliminate error factors—Redesign processes and procedures where errors have occurred, and eliminate factors that are prone to having mistakes happen again. Workflows should be reviewed to find areas that are weak or outdated to reduce potential errors; areas can also be combined with other processes or procedures to increase overall operational efficiency. Although total error elimination might not ever be achieved in a business, error elimination and error reduction should be a goal.

2. Replace one process or procedure with another—This action involves substituting a process or procedure with a more reliable one. Using new and improved equipment allows technology to achieve more reliable results instead of simply relying on human intervention. A passive approach to processes and procedures is to keep the status quo; a proactive approach—substituting one process or procedure with another—leads to error reductions.

3. Practice prevention—By eliminating or reducing potential errors, “negatives” can be turned into “positives.” For example, safety guards on machines can prevent employee injuries; online forms can have field limiters and checks to ensure accurate data input; computer programs can ask for a confirmation before an item is deleted. Practicing prevention can be implemented in any business. It produces positive outcomes as it prevents costly accidents, increase accuracy and accountability, and improves operational efficiencies.

4. Simplify to improve—Facilitation helps make it easier to not make mistakes. People love simplicity over complexity; the easier a task, the better it will be understood. An example of avoiding confusion in an office might be to color code different forms—print expedited requests on red paper so they don’t get lost in the shuffle with other documents. Data entry can be simplified by using “check-the-box” choices and on-form instructions. There is no need to make something difficult if it can be made easier.

5. Detect first—Detection warns of possible impending problems. For example, parking garages have entrance and exit signs, as well as height warnings; road signs warn of impending danger. Advance preparation through the use of various detection measures can help reduce errors from even happening in the first place.

6. Mitigate adverse effects—Mitigation alleviates the effects of something going wrong. One business might have an automatic shut-off switch for electricity, water, or a specialized piece of machinery; another business might have a computer lockout after a number of incorrect password attempts. Although everything can be done in a business to prevent errors, mitigating the effects of an operational failure is important when an error does occur. Forward thinking rather than emergency fixes is a prudent business philosophy.

Total Involvement

Total involvement of everyone in a business—from owners to employees—can stimulate creativity to figure out ways to prevent errors from happening. Observation, group discussions, and open communication can correct many deficiencies in a business before something goes wrong. Prevention now—peace of mind later!

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There are a number of reasons why customers may decide to abandon your product or service. But if you don’t find out why—and fast—you’ll never know how to keep new customers from sticking around in the future. That’s why we asked eight successful entrepreneurs from Young Entrepreneur Council the following question:

Q. My customer retention rate is declining. What’s the first thing I should do? 

1. Assess the Situation

Ask yourself what their reasons are for leaving. Is your service or product frustrating or difficult to use? Is it too expensive? Is there a superior alternative out there? Then, create an approach to address the most common concerns. You can learn a lot from a simple, honest conversation or email exchange with a customer who is leaving. —Volkan Okay Yazici, Stonexchange

2. Pick Up the Phone

In my businesses, I’ve found that picking up the phone and calling clients goes a very long way–it trumps email any day of the week. Ask people how things are going, what you can do to help, and what problem areas they have that need your attention. You’ll learn so much about your product offering and company in a very short period of time, and customers will really appreciate the one-on-one attention. —Alex Miller, Upgraded Points

3. Check Your Data

Look at your available data to see when, where, and why the decline happened so you can pinpoint a particular set of actions or communications that put customers off. While you can ask them why they decided to leave, it’s important to sift through your data for any patterns in the decline and better understand the problem from inside the organization. —Angela Ruth, Due

4. Find Out if It’s a Product, Customer Service, or Sales Problem

Are you attracting the wrong types of customers? Are you unable to retain good customers because your product inadequately meets their needs? Or is there a fundamental problem with your approach to customer service? Before you start interrogating customers about why they are abandoning ship, find out first if this is an internal problem you can solve quietly. —Firas Kittaneh, Amerisleep

5. Reward Customers for Completing Exit Interviews

Incentivize past customers to complete exit interviews or surveys by offering gift cards or raffle entries in exchange. When someone makes a decision to leave, it’s usually final. But figuring out why they left and fixing the problem can prevent other customers from leaving. Consider the “price” of getting people to do exit interviews/surveys as an investment in keeping your current and future clients. —Dave Nevogt, Hubstaff.com

6. Survey, Discuss, and Take Action

Use periodic customer satisfaction surveys and discussions to find the reasons behind your churn rates. Hire account managers that have experience with account/crisis management. Set realistic expectations on what you are capable of doing so that you have the ability to wow them. Under-promise and over-deliver. —Deepti Sharma Kapur, FoodtoEat 

7. Study Trends

Using analytics and other data sources, look for trends to determine the cause. Oftentimes, numbers will share the story behind the decrease in customer retention. Then perform an audit of your current processes, products, and services to identify how you can improve. This includes competitors since they may offer the same thing for less, or something better. —Marcela De Vivo, Brilliance

8. Turn Off Marketing Spend

While it’s true that you should talk to customers to understand why they’re leaving, there’s a step I’d probably take before that, which is to dial down or turn off marketing spend. Most likely, you’re spending with a certain customer lifetime value calculation, and now that’s changing. So don’t overspend. —Fan Bi, Blank Label

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