For businesses seeking small business loans or working capital loans, the process may seem like a Catch-22, or no-win situation. Generally, loans are secured by collateral such as accounts receivable, inventory, real estate, and other assets. But, according to the Wall Street Journal’s article, Collateral Damage in Lending, the collapsing value of assets such as inventory and equipment is causing a collateral gap and resulting in many businesses falling short of loan eligibility. Thus, these small businesses must still pledge the usual collateral, but, increasingly, small business lenders are requiring cash or other highly liquid assets as secondary sources of repayment. The Catch-22 is that often these cash requirements are equal to the loan request amount. As a result, small business owners find themselves asking, rhetorically, “If I have the cash, why do I need the loan?”
Accounts receivable remain one of the most important assets of a company. They are the primary generator of cash. Tighten and reduce your cash conversion cycle by reducing your business’s accounts receivable days outstanding to generate more cash. To do this, consider your business’s complete revenue cycle from customer acquisition to invoicing to payment receipt. Is your business following accounts receivable best practices? What is the propensity to pay and credit worthiness of your customers? How does the business handle aging receivables?
Companies such as Ftrans offer complete accounts relievable and credit management solutions that help businesses address cash and revenue cycle concerns. Implementing these best practices enables accounts receivable funding for your business without a Catch-22.