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We’ve looked at how it pays you to get your money faster, and given you tips you can implement immediately to get your customers to start paying up more promptly. But no matter what, there will still be a time lag on some accounts. To keep your cash flow active, you can borrow against your receivables. Here are three ways that might work for you.

Your receivables are almost as good as cash. If your profit margin justifies it, here are some ways to get money before they come in.

1. Factors

Factors offer three benefits. You get your cash as soon as you ship. You don’t need to worry about following up on your accounts receivable; the factor will do it. And you may even get some protection from bad debts.

Here’s how it works. You pledge all your receivables to the factor in return for a line of a credit. You pay the prime rate plus about 3 percent. The factor administers your accounts receivable, and offers services, such as bookkeeping, mailing of statements and collection. As far as your customers are concerned, the factor is your accounts receivable department.

When choosing a factor, make sure you talk to some of the company’s clients to make sure you’re dealing with professionals.

2. Invoice Discounters

An invoice discounter is similar to a factor, but he works on a case by case basis. First, you meet to discuss terms and agree on a contract covering future transactions. Then, when you issue an invoice, you ask the discounter if they’ll buy it. The discounter checks to ensure it’s valid and agrees. 48 hours later, you have your money, less the discounter’s percentage.

The percentage you pay will depend on how long the receivable is outstanding. 15 days costs less than 30 days, and so on.

3. Banks

Banks may also offer you financing for receivables, but in this case the receivables are considered collateral; the bank won’t collect the money from your customers. It also shows up as a debt on your financial statement, whereas factoring is a straight sale.

On the plus side, banks charge lower interest, and it’s a great way of getting to know them — or getting them to know you.

It’s also easy to increase the line of credit without reapplying. All you need to do is make more sales. In some cases you may even be able to borrow up front, if you’ve received an order for something you have on back order. Some finance companies and factors allow this.

Next time, we’ll look at little-known technique to help you get cash without borrowing. Sound impossible? Stay tuned.

The Small Business Funding Center grants permission to reproduce this article in its entirety only, with credit given to the Small Business Funding Center at

For information on grants & loans for your new or existing business call 1-800-658-9792 . Or write us at Small Business Funding Centre 1500 Bank Street, Room 425, Ottawa Canada K1H 1B8 or e-mail us.

This Business article was written by The Small Business Funding Centre on 1/10/2006

The SBFC’s mandate is to help new and existing Canadian small businesses gain access to government funding: helping young entrepreneurs gain the knowledge and tools to get funding to help start-up their own practice. Coincidently, they also have an interesting and educational monthly newsletter/online database containing hundreds of articles related to various business topics and related issues.