Small Businesses Turning to Alternative Solutions for Credit Issues

A small business owner in Scottsdale Arizona, who is an importer of luxury shopping bags, recently found himself in a challenging situation not uncommonly faced by other small business. He has been in business for over ten years, and imports high-end luxury shopping bags from China, and in turn sells them to distributors here in the United States. Although business was good, he ran into issues with cash flow as he waited to be paid by his local distributors for the items he was providing them.

His supplier in China had granted a credit line throughout the ten years they had been in business.  He had reached the top of his credit limit, and they were no longer willing to release more product to him without payment. While he had the need, he found himself in a position that he was waiting on accounts receivables and did not have the cash flow to be able to pay his supplier.  These cash flow issues could potentially put a fatal halt to his business. He needed to look into alternative solutions for credit.

In the current economy, this is not an unusual situation for a company. While businesses are still operating and even growing, the average time of payment on accounts receivables is on the rise.   This delay has a domino effect, especially for companies like his that act much as the middle man between supplier and the actual distributor to the public.

He turned to a factoring company for a solution to his problem. This company was able to help him in a few different ways. First off, they offered the business owner invoice factoring, meaning they took on the collection responsibility of his outstanding receivables, providing him access to the funds, at a small fee. They went one step further and offered the manufacturer in China a vendor guarantee.  They told the manufacturer that as soon as the goods were shipped, arrived and were accepted by the end user, they would provide the manufacturer direct payment from the proceeds of the factoring.

The vendor guarantee process gave the manufacturer in China the comfort of knowing they would get paid their part before the factoring profits are given to the initial business. With this sort of offer, the credit worthiness of the factoring company becomes the deciding issue for the supplier to extend extra credit comfortably.

This alternative credit solution illustrates what small businesses are turning to in this economy to stay afloat and grow. Thanks to the vendor guarantee option, the small business owner was able to remain importing product and selling to his distributors as he continues to increase his business.

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