Tag: cash flow

Cash Flow refers to the total amount of money moving into and out of a business.

Important Questions to Ask Before Signing a Factoring Agreement
Invoice factoring is a great way to get immediate cash flow, but much of your experience depends on the factoring company you choose. We’ll explore the basics of the factoring process below and highlight a few questions you can ask as a small business owner to help ensure you choose the best invoice factoring company and build a stronger business in the process.

Familiarize Yourself with Invoice Factoring Before You Begin

Known interchangeably as accounts receivable financing, invoice factoring is a distinct mechanism compared to other business funding solutions and transactions. Instead of waiting weeks or months for clients to settle their outstanding invoices, invoice financing companies can purchase your invoices and disburse the cash instantly

How do factoring companies make money?

Factoring companies usually only advance a portion of the invoice’s value upfront. The amount varies depending on your industry and other considerations, but it’s usually between 80 to 90 percent and can be even higher for transportation and staffing industries. When your customer pays the factoring company for the invoice amount, the factoring company deposits you the remainder, minus a factoring discount fee, which the company retains as payment for their services.

What is a factoring fee?

Factoring fees are usually represented as a percentage of the total invoice value. The amount charged will typically be a few percent. However, factoring rates vary based on the factoring company you choose, how long it takes your customers to pay, and how large your company is. Depending on the circumstances, some of the factoring fees at Charter Capital can even be lower than one percent. If you’d like a detailed breakdown of how much invoice factoring costs and how factoring fees are calculated, refer to our factoring cost breakdown for small businesses.

Do banks do factoring?

Banks are geared toward providing loans, which earns them payments for fees and interest. Since factoring isn’t a bank loan—you don’t borrow and don’t have a debt to pay back—it’s not a service banks typically provide.

Get to Know Each Factoring Company

Factoring companies all work a bit differently. You can do a bit of research before you connect with one to determine if your time will be well spent.

What kind of reputation does the factoring company have?

The best source of information is often customer testimonials when it comes to gauging a factoring company’s reputation. Have a look around the net to see what people are saying about any firm you’re considering. At Charter Capital, we make it easy by sharing factoring reviews on our website.

What services do they offer?

Even if a company’s sole focus is invoice factoring, they may provide additional services to help you build a stronger business. For example, Charter Capital offers fuel cards to freight factoring clients. Similarly, companies specializing in staffing factoring can provide tailored solutions to help staffing agencies meet their unique payroll funding challenges, ensuring consistent cash flow for weekly or bi-weekly obligations. For businesses in the security industry, specialized solutions like factoring for security companies ensure consistent cash flow to meet operational needs such as payroll, enabling companies to thrive in a competitive market.

By partnering with the right factoring company, businesses in various industries can access not only cash flow solutions but also industry-specific perks that simplify operations and support growth.

Top 10 Questions to Ask Prior to Signing a Factoring Agreement

Getting answers to the right questions before signing a factoring agreement will help ensure you choose the right one and know what to expect. Ask the ten questions below to any factoring company you’re considering so it’s easy to see which one is right for you.

1. How quickly can I get funding?

The timeline is different for each company, though a few business days is fairly standard. Charter Capital provides same-day funding upon request.

2. What kind of customer service do you offer?

It’s easy to feel like a number when you work with a large factoring company. However, you’ll have a dedicated account manager when you partner with Charter Capital. This person will be your main point of contact and will assist you as needed on an ongoing basis, so you’ll be working with someone who’s not only a factoring specialist but who also knows you and your business well.

3. Does the factoring company provide credit protection?

The level of credit protection you receive will vary from one company to the next too. At Charter Capital, we are interested in the creditworthiness of your customers, so we perform credit checks on them to verify they’re creditworthy in advance. That way, the likelihood of non-payment default due to bankruptcy is diminished, your cash flow remains steady, and your credit is protected.

4. How much is advanced?

Factoring companies usually advance 80 to 90 percent of an invoice’s value, which can be even higher for transportation and staffing. Naturally, the greater the advance, the bigger the cash flow boost your business receives.

5. What are the rates and fees?

Factoring fees covered earlier are only one expense a factoring company may charge. While Charter Capital makes a point of providing transparent pricing, be on the lookout for commonly hidden fees such as:
- Application and Startup Fees
- Servicing Fees (Also Called Administrative or Maintenance Fees)
- Invoice Processing Fees
- High ACH and/or Bank Wire Fees
- Monthly Minimum Fees
- Audit Fees
- Minimum Fee Per Invoice
- Check Clearing Days
- Termination Fees
- Penalties
These types of fees can make an otherwise low appearing factoring rate much more expensive than it would otherwise appear.

6. Do you manage accounts receivable for me?

It’s usually a nice benefit when a factoring company handles your accounts receivable for you because it frees you from chasing payments. It’s even better if they offer perks to your customers, like multiple payment options, as it boosts customer service. Also, make sure to discuss what type of contact the factoring company will have with your customers. Check the factoring company’s reviews and make sure you are comfortable that any customer contact will be handled in a professional way.

7. How are credit checks carried out?

If the factoring company runs credit checks on your customers before accepting their invoices, find out what the process is like. At Charter Capital, the process is quick and free, but this isn’t always the case with other companies.

8. What are the invoice factoring requirements?

The terms will vary for each company. Find out whether you can choose which invoices you want to factor, or if you’re required to factor all your invoices. You may also need to ask this on a per-client basis, whether you’ll need to factor all invoices for a specific customer or if you can choose only certain ones.

9. What is the contract period?

Some companies tie you into long-term contracts. Make sure you understand what your obligations are and choose a company that fits your needs.

10. What other services and support do you offer?

Dedicated account managers and free credit checks are things Charter Capital offers to all our clients. We also have industry-specific perks. For example, trucking companies may qualify for fuel advances and fuel cards. Freight brokers can do carrier Quick Pay too. Always ask what other services a factoring company provides, so you can maximize the benefits and get the most out of your relationship.

Connect with Charter Capital and Get a Free Rate Quote

If you have any remaining questions about factoring, factoring agreement, or how Charter Capital can help, our team is happy to assist. Simply provide us with a few details about your business, and we’ll be in touch with a complimentary rate quote promptly. Begin your journey with us now, and discover how invoice factoring services can provide cash flow solutions and maximize the benefits of factoring for your business.
January 18, 2021
Invoice Factoring vs Traditional Bank Loan – Which is Best for Your Business?
Not sure if a factoring company or a bank is right for your small business? Both can provide your company with working capital and help you cope with cash flow lulls, but factoring helps in ways loans don’t and can fill gaps left by traditional lending too. Below, we’ll break down how they’re different, what some advantages of factoring are, and go over a few scenarios when factoring might be more ideal than a bank loan.

How is Invoice Factoring Different from a Short-Term Business Loan?

Sometimes referred to as receivable financing, factoring involves selling your unpaid B2B invoices to a third-party, known as a factoring company. The factoring company provides you with immediate payment for the invoices and then waits for the customers to pay them.

A few of the things that make accounts receivable financing different from a loan are:
- There’s no debt. Because you’re not borrowing anything and your customers are ultimately responsible for paying their invoices, thus paying the factoring company back, there’s no non-recourse debt for your company to pay.
- Payment is faster. Companies like Charter Capital can provide you with same-day funding, unlike banks, which can take weeks or more to fund a loan.
- There’s greater flexibility. You can pick and choose which invoices you’d like to factor and how often you want to factor.
- It’s easier to get a qualification. Since credit checks and a minimum credit score aren’t as important compared to traditional loans. Your history and personal credit score are less of a concern because your customers are the ones responsible for repayment by virtue of paying their invoices.
Times When Factoring Services May be Better Than a Traditional Bank Loan

Given the benefits mentioned above, there are many times when factoring might be more ideal than a bank loan. A few common situations are outlined below.

You Have Slow-Paying Clients

As long as you’re invoicing customers after work is performed or goods are delivered, there will always be a payment gap. The problem is, sometimes customers can take weeks to pay their balance and still be within the letter of their contract. Factoring closes the gap for you and can work whether all your clients are sluggish or if you have a single customer who always seems to put your invoice off as long as possible.

You Want to Improve Cash Flow

Sometimes, the gap between completing work and getting paid isn’t a huge deal, but if a cash flow lull is preventing you from growing or paying your bills, it’s essential to address the issue. Factoring is a simple, no-debt cash flow solution.

You Require Liquidity to Take Advantage of a Discount

Venders often offer discounts based on volume or the ability to pay cash upfront. Factoring can provide you with the cash you need to take advantage of discounts and special pricing that will save you money.

You’re Unable to Qualify for Loan or Line of Credit

As Harvard researchers have pointed out, banks typically have the same overhead for large loans as they do for small loans. There’s minimal benefit for them to offer smaller ones because they’re not going to earn as much profit. With that in mind, banks typically start at $100,000 or $250,000 loans, but most small businesses need less than $100,000. Even well-qualified small-business owners don’t always make the cut because the profit margin is too small for a large bank to bother. Factoring companies are geared toward filling funding gaps like these, so it’s easier to get approved.

You Have Debt Covenants with Other Lenders

Debt covenants are rarely spoken about, but they can really throw a wrench in small business finances. In short, lenders can throw all kinds of stipulations into a contract. For example, they may require that you maintain a certain cash flow level or forbid you from taking out other loans, and companies usually have penalties for violating these debt covenants. They may raise interest, charge fees, or even demand immediate repayment in full.

If you have a loan with another company, you’ll need to check your contract to see which debt covenants apply and what the penalties for breaking them include. However, factoring is usually a safe bet that allows you to boost your cash flow as needed.

Your Credit History is Less Than Perfect

Although your factoring company will likely look into your credit history and business details, you aren’t the one paying the invoices—your customers are. Therefore, the factoring company will be more concerned with the history of your customers. You can qualify even if your credit history isn’t great.

You Have Recent Bankruptcies

You can almost forget about a bank loan of any kind if you or your business has recently been through bankruptcy. Again, though, factoring isn’t focused on your history, so bankruptcy isn’t a problem.

You Need Access to Cash Quickly

It can take weeks or months to get approval for a bank loan. With factoring, the approval process is incredibly fast, and you can get funding on the same day you submit your invoices.

How Much Does Factoring Cost?

Every factoring company will have different rates, and the rate you’re quoted will vary based on things like volume, the total dollar value of the invoices, and the length of time it takes your customers to pay. At Charter Capital, we take great pride in offering competitive rates to ensure your receivable financing more than pays for itself. Some of our factoring fees are as low as one percent.

Which Industries Use Factoring?

Generally speaking, factoring can be used by all B2B companies. So, if your business bills other businesses for goods and services after they’ve been delivered, it can work for you too. However, a few industries leverage it more often than others.

Freight

In trucking and freight services, it’s common for the business to wait 30-90 days for payment. That’s not always feasible for small trucking companies, let alone owner/ operator firms. Factoring companies are a huge help here, allowing truckers to keep their wheels on the road and keep running loads without worry about delayed payments. At Charter Capital, we also help freight brokers. Our expertise in transportation and logistics gives the companies we serve an extra edge.

Construction

Subcontractors are often in a tight spot. Supplies need to be purchased, and projects need to stay on track to meet deadlines, but unpaid invoices can leave firms without the capital necessary for either. Invoice factoring eliminates that cash flow gap, so that construction can continue without delay.

Real Estate

Sometimes referred to as a real estate commission advance, factoring helps agents and brokers shorten the gap between the time a sale is agreed upon and the day payment is made. Given that closing can take weeks or months depending on the number of hiccups, the advance helps ensure real estate professionals have access to working capital to apply to things like marketing so that they can move onto the next big sale uninhibited by the wait.

Staffing

Staffing agencies naturally have immense payroll costs and their own overhead to manage but often wind up waiting months after they’ve paid employees to receive payment from their clients. Factoring for staffing agencies helps meet these types of short-term needs and can also provide capital for bringing on additional employees.

Oil and Gas

Landing a contract with a large energy corporation can be a significant achievement for an oilfield service company. However, these big corporations often have lengthy invoice approval processes that require multiple approvers and weeks of waiting. With Oilfield Factoring Services, the cash comes in quickly, providing working capital for equipment, payroll, and other business needs.

Connect with a Leading Factoring Company to Help Increase Your Cash Flow

If your business is struggling with cash flow or needs a quick capital injection to fuel growth or cover an urgent expense, accounts receivable financing may be your ideal solution. Contact Charter Capital for a complimentary rate quote.
January 4, 2021
Top 11 Benefits of Small Business Invoice Factoring

Invoice factoring is one of the most popular cash flow solutions, but all too often, small-business owners don’t hear about it until they’ve already leveraged a less-than-ideal tool or they overlook factoring because they’ve come across some misinformation on the net. On this page, we’ll cover some invoice factoring FAQs and then break down what makes it so popular.

Factoring FAQs

To fully understand the benefits of invoice factoring, it’s essential to know the basics, including what invoice factoring is and what it’s not.

What is Invoice Factoring?

Invoice factoring involves selling your accounts receivables (unpaid B2B invoices) to a third party at a discount. Known as a factoring company or factor, the third party pays you immediately for the invoices and then collects payment from your customers.

Is Invoice Factoring a Business Loan?

Invoice factoring is not a loan. You’re not borrowing money, and there’s nothing to pay back. It’s your customer’s job to pay their invoice.

What is a Factoring Account?

Your factoring account allows you to do business with a factoring company. You’ll set it up at the onset of your agreement and then be able to factor invoices according to the agreed-upon terms.

What Are the Pros of Invoice Factoring?

Invoice factoring can be a strategic fit for businesses facing rapid growth, seasonal demand shifts, or cash flow gaps caused by slow-paying customers. It’s especially useful for companies with strong sales but limited access to traditional credit. Many small businesses choose factoring over loans because it provides immediate funds without adding debt or requiring long-term commitments.

Top 11 Benefits of Small Business Invoice Factoring

Now that we’ve covered the basics, let’s look at how invoice factoring can support your business growth and financial health. Below are 11 powerful benefits to consider.

1. You Get Immediate Cash Flow

It’s difficult for small businesses to wait for payment. Invoice factoring works by giving you a quick cash injection by tapping into your unpaid invoices as needed.

2. It Can Help Boost Ongoing Cash Flow

You’re in control of when you factor. So, while many small businesses use it occasionally to meet a cash flow shortfall, others factor more often to keep their cash flow steadier.

3. You Have a Better Chance of Getting Approved

Financial institutions such as banks that provide traditional loans often deny small businesses because they don’t have good credit ratings or haven’t been in business long. Traditional lenders are often less accessible to small businesses, especially those with limited credit history or inconsistent revenue. Factoring isn’t a loan, so your approval isn’t contingent on these things. The company you work with will be more concerned with the creditworthiness of your customers—the ones they’re collecting payment from. With that in mind, it’s much easier to get approved.

4. You Can Have Professionals Managing Your Accounts Receivable

Chances are, managing your invoices isn’t what you do best. It’s just something you do as a part of running a small business. As accounts receivable pros, the company you work with will have more experience managing receivables and tools that make paying invoices easier for your customers, so the process will likely be much smoother, and payments will come in quicker.

5. You’ll Have Extra Support

Invoice factoring is not just a financial solution. You’re essentially outsourcing your receivables to an expert. That frees you from the tedious task of chasing money and can improve your customer relationships.

6. Invoice Factoring is a Flexible Cash Flow Solution

As mentioned earlier, you’re in control of which invoices get factored. You can set up your factoring account now and not leverage it for months or start using it right away and you don’t have to agree to a long-term contract. This makes it ideal for small businesses that experience seasonal lulls and those with occasional needs.

7. You Can Grow Your Business with Invoice Factoring

Once the cash goes into your pocket, you can spend it any way you wish. Many businesses put the funds toward immediate needs, such as payroll, overhead expenses, or purchasing supplies. However, factoring can also be used for growth-related needs, such as marketing, opening a new location, purchasing new equipment, taking on more work, or offering more relaxed payment terms to win a new customer or bid.

8. You Avoid Taking on Additional Debt

Not all debt is bad, but businesses that get involved with things like merchant cash advances and lines of credit often find themselves in a debt spiral they can’t get out of. This isn’t a problem with invoice factoring since it’s a no-debt solution.

9. You Can Manage Cash Flow to Maintain Positive Working Capital

Simply put, you need positive working capital to ensure you can pay all your own bills. Unfortunately, slow-paying customers can throw a wrench in that, causing small businesses to run out of money despite working hard and efficiently. With cash flow steadied through invoice factoring, it’s easier to ensure you have cash on hand to cover all your operating costs.

10. Invoice Factoring Protects Your Finances from Delinquent Clients

Slow-paying customers are damaging to your business, whether that’s through obvious issues, such as running out of cash, or through opportunity cost. Invoice factoring can serve as a layer of protection from these common concerns.

11. Working Capital Financing is a Few Clicks Away

When you work with an experienced factoring company, it’s easy to get set up and you can get funded right away. At Charter Capital, we’re even able to provide our clients with same-day funding.

Expanding Your Small Business with Invoice Factoring

Leveraging invoice factoring can be a powerful strategy for small business growth and financial stability. It helps owners bypass traditional financing hurdles by providing immediate access to capital based on unpaid invoices, without adding debt or risking cash flow interruptions.

Invest in Growth

Beyond covering day-to-day expenses like payroll or supplies, working with an experienced invoice factoring company can give you the flexibility to invest in long-term strategies, such as marketing, opening new locations, upgrading equipment, or taking on larger projects. By turning unpaid invoices into working capital, you can seize opportunities when they arise and keep your business moving forward.

Cover Inventory Costs

For businesses carrying significant inventory, factoring can effectively act as one of the top inventory financing options by providing the cash you need to purchase stock without waiting for slow customer payments. This ensures you can maintain inventory levels to meet demand and support growth.

Get Tailored Factoring Solutions for Your Industry

Choosing a factoring partner with industry expertise can make a big difference. For example, staffing agencies benefit from specialized staffing factoring services that address unique cash flow challenges and payroll needs, while freight brokers gain advantages from freight bill factoring designed to keep carriers paid promptly and trucks on the road.

Request a Quote for Your Small Business

To see how easy and affordable invoice factoring is, connect with a factoring company. Start by requesting a quote from Charter Capital.

December 21, 2020
6 Ways to Compare Factoring Companies & Find the Best One

Getting ready to compare factoring companies? As with any financial product, it’s essential to become familiar with factoring and how terms differ from one provider to the next. Below, we’ll break down some of the most-asked questions people have when comparing factoring companies, areas to explore with each factoring company, and traits to look for as you make a decision.

Getting Started

Factoring can give your business an immediate cash injection by tapping into your unpaid B2B invoices. Often thought of as a type of accounts receivable financing, invoice factoring differs in that you’re not taking out a business loan, but rather, are essentially selling your unpaid invoices to the factoring company at a discount. After the factoring company pays you, they assume responsibility for collecting payment from your customer. That in mind, you can think of it as a no-debt cash flow solution intended to help with your organization’s short-term needs.

Do banks do factoring?

Banks offer accounts receivable financing, but they don’t generally offer invoice factoring services. Instead, they usually provide loans that leverage the invoices as collateral. You’re still responsible for chasing your invoices and you’ll pay the bank back over time with installments that include interest.

Can you have more than one factoring company?

You can only work with one factoring company at a time. The reason is fairly obvious—if multiple companies wind up giving you funds for the same invoice, untangling who gets paid would be a mess. This aspect is governed by the Uniform Commercial Code (UCC) which stipulates that a factoring company must file a UCC-1 financing statement when you enter into an agreement with them. The form essentially says that, as a financial institution, your factoring company has an interest in your “property,” which, in this case, is your invoices. It prevents other financial institutions from claiming rights to them. If you decide to switch factoring companies somewhere down the road, you can, but the new company needs to coordinate with you and your old company and file a new UCC-1.

Compare Each Factoring Company as a Business

Before breaking down the packages you’re being offered, evaluate each factoring company on the whole. Make note of details that distinguish the company, itself, from competitors, and whether they lead the pack with customer-friendly practices.

1. How long has the factoring company been in business?

Companies that stand the test of time usually have good track records for success and provide better factoring services. This is essential for you and for your customers, as the factoring company will become the face of your business in terms of collections. Reputable factoring companies have a long-standing history and proven track records, ensuring reliable service for your business.

2. Does the factor have clients in your industry?

Industry-specific expertise can ensure you’re getting a financial product that’s tailor-made for your niche and that the company understands your unique concerns. Oftentimes, invoice factoring companies specialize in a few key areas and build comprehensive solutions to serve that niche.

Industries like oil and gas have unique financial needs due to long payment cycles and substantial operational costs. Choosing a factoring company that offers oilfield factoring can provide specialized services tailored to these challenges. Such companies understand the intricacies of the oil and gas sector and offer solutions that improve cash flow, allowing your business to thrive even amidst industry-specific hurdles.

For example, one area Charter Capital specializes in is trucking and freight factoring. It means our representatives understand what carriers and freight brokers need, common payment terms in the industry, and provide other helpful services, such as fuel cards. There are unique features and benefits for each industry we support.

3. Can they handle your sales volume?

Factoring companies come in all sizes. Some may not have the ability to support your needs and you don’t want to find that out when you’re struggling with a cash flow issue and counting on your factoring company to come through. It’s also worth noting that you’ll generally pay less the more you factor, so selecting a company that can handle your sales volume can help ensure your costs stay low too.

4. Does the factor require minimum factoring fees?

Some companies tie you in with monthly minimums. For example, they may stipulate that you pay a certain amount each month regardless of whether you factor, or they may require you provide them with a certain volume each month. Small-business owners may look at these terms and think they’re doable, only to find their cash flow issues are reduced down the line and wind up paying for services they don’t really need.

5. Does the factor require a long-term commitment?

Don’t sign onto long-term contracts unless you really need to. As mentioned above, you may not need to factor for an extended period of time. Lots of businesses factor just to get through a seasonal lull, to get through an economic crunch, or to deal with an unexpected issue. Work with a company that lets you factor only the invoices you need to factor when you need to factor them.

6. Are the factor’s advance and fee structure competitive?

Get a general idea of advance rates and fee structures to ensure the company is competitive as a whole. For example, you’ll typically see advance rates ranging from 70 to 90 percent the invoice value and fees between one and five percent of the invoice value.

Pick the Best Factoring Company by Comparing Key Features

Once you evaluate factoring companies, you’ll want to take a look into the specifics of the package or product each of your leading choices offers. The best factoring company for your needs is likely to stand out.

Recourse vs non-recourse

Find out who is responsible if a customer doesn’t pay their invoice. Your factoring company will examine your customer’s creditworthiness, and thus likelihood of paying, prior to agreeing to factor an invoice, so non-payment is rare. However, in the event someone does skip a bill or go bankrupt, you’re ultimately responsible for their debt with recourse factoring. With non-recourse factoring, the factoring company assumes responsibility for the debt, though it’s usually in exchange for higher fees and/ or reduced advance rates.

Flexibility

Watch out for minimums and long-term contracts. Factoring is generally thought of as a short-term solution. Although large well-established companies may use it from time to time to avoid taking on debt while sorting out a cash flow issue, it’s more often leveraged by small and midsize businesses that eventually solve their cash flow issues or move onto bank-supplied solutions like lines of credit and term loans. If you’re tied into a minimum or a long-term contract, you could be forced to keep paying even when the model no longer suits your needs.

Factoring fees

Get an estimate to determine your actual rates so you can do a proper comparison. A lot of companies say they offer factoring fees of two percent or less, but your actual factoring fees will depend on a number of things, such as volume and the creditworthiness of your clients. You may not qualify for two percent even if its advertised. The same is true of advance rates.

Funding time

Find out how quickly you’ll get your cash and if there are additional fees for expedited service. Whereas some factoring companies offer same-day funding, others can take several days to a week or more.

Perks and value-added services

Explore what other benefits you qualify for by partnering with a company. As mentioned earlier, fuel advances are one way Charter Capital helps our trucking and freight clients. We also provide perks like free credit checks on your customers, 24/7 account access, and a dedicated account manager for clients in every industry, as well as other industry-specific perks.

Get a Free Rate Quote

As a leading recourse factoring company, Charter Capital provides competitive rates, flexible funding, same-day payment, and a wealth of perks, all with no long-term contracts. Explore how Charter Capital can help your business with a free rate quote.

September 30, 2020
Top 8 Reasons Why Startups Fail
It’s often thrown around that 90 percent of startups fail. Where does this number come from? Is it legit? And, more importantly, if it is, what can you do to avoid being one of them?

How Many Startups Fail

Sadly, this startup failure rate is accurate. Researchers from UC Berkeley & Stanford came together to create the Startup Genome Report a few years back, which revealed that 90 percent of startups do indeed fail, and it’s most often the result of “self-destruction” rather than competitive issues. While the scale may shift in that regard during difficult economic times, the data is clear. Self-awareness and education can go a long way in creating a stable and profitable company. Below, we’ll go over some of the biggest reasons for startups failure, so you can arm yourself with the tools necessary for success.

Why Startups Fail

1) Good Idea, Bad Business

Many small business owners and startup founders start out with a fantastic idea they’re sure is going to take the world by storm but what they envision people wanting during product development and what people genuinely desire aren’t always the same. After postmortems with 101 startups, CB Insights found that 19 percent of companies failed because their products were not user-friendly.

This is theoretically an easy fix if you’re actively requesting feedback from early customers and taking what they have to say to heart. However, 14 percent of failed businesses don’t hear their customers out, and seven percent don’t even try to pivot when they need to. A further ten percent don’t pivot well.

“Startups that pivot once or twice raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all,” say Startup Genome Report researchers.

The bottom line: Listen intently to your customers and be ready to pivot and compromise to meet their needs.

2) Expanding Too Quickly

It’s easy to think of expansion in terms of adding more shops or products, but the Startup Genome Report lists several areas in which businesses may expand too rapidly.
- Customer- Spending too much on customer acquisition and/or overcompensating on lack of demand with marketing and press.
- Product- Building a product that doesn’t solve a problem, focusing on scalability before product-market fit, and/or adding features that are desired, but not needed.
- Team- Hiring too many people, bringing in the wrong mix of people/ levels, and/or having more than one level of hierarchy to start.
- Financials- Not having enough cash on hand to handle expansion and/ or having too much cash, which can result in undisciplined spending.
- Business Model- Not having a business model, focusing on profit too early, failing to pivot, and/ or failing to examine goals and progress.
The bottom line: Map out your own business plan ahead of time with clear benchmarks and metrics to meet. Schedule regular progress audits.

3) Lack of Market Demand

It’s easier to have a disconnect between product and consumer than one might think. “We had no customers because no one was really interested in the model we were pitching. Doctors want more patients, not an efficient office,” reported a patient communicator in a CB Insights postmortem. In all, their analysts found that 42 percent of startup failures involve a lack of market demand.

The bottom line: Get to know your audience before launch and identify their pain points. Don’t ever assume you know what they are.

4) Poor Marketing

Many startups are so passionate about their product or service that they expect word-of-mouth marketing to create sales. The reality is, their audience may never even learn they exist. Others recognize the importance of marketing, but don’t have the systems and people in place to effectively handle marketing strategy, eventually hitting a wall they can’t overcome. Per CB Insights, issues like these contribute to 14 percent of startup failures.

The bottom line: Have someone with marketing expertise on your team even at the early stages to help identify your target audience and how to reach them.

5) Lack of Passion

There is no denying entrepreneurs are a passionate group, but this passion can become all-consuming and kill work-life balance. Harvard Business Review reports that virtually all entrepreneurs say they experience some degree of burnout, and a full quarter define it as “moderate burnout.” As burnout sets in, passion dies down and so does the small business.

Other times, business pivots take the startup in a direction the founder never expected. As the creator of a blog commenting system explained to CB Insights, “We didn’t really care about journalism, and weren’t even avid news readers.” This light-bulb moment occurred only after the product was launched, leaving the team to run a new business they had no interest in.

Issues like these are present in nine percent of failures, per the postmortems.

The bottom line: Pace yourself and be ready to move in new directions or bring on people who are passionate about what you do if it shifts.

6) Poor Management Team

Nearly a quarter of startups fail because they don’t have the right team, while 13 percent fail because of disharmony among the team and/ or investors, per CB Insights research. All too often, this comes down to the management—people placed in managerial roles who may not have the skills and experience to manage teams but do so because startup culture requires team members to wear many hats. Unfortunately, bad management spreads poor morale and damaging practices, which can infect the entire company.

The bottom line: Ensure your managers have the skills and experience necessary to lead a team. Invest in training if you’re promoting from within or bring on external help if your existing team is unprepared for the role.

7) Not Placing Enough Emphasis on Customers

Ignoring your customers and what they have to say is a huge contributor to startup failure. User feedback is a vital part of the startup journey and should be prioritized throughout your business journey. Whether the feedback you receive is good or bad, you should always take it seriously. Good feedback tells you what you should keep doing within your business, and bad feedback gives you insight into what needs to change within your business. By keeping an eye on what attracts customers to your business and what deters them, and adjusting your business strategy accordingly, you can improve your potential client base and create a network of loyal, repeat customers.

The importance of customers is not just about retaining and attracting new clients. Another common reason for startup failure is that business owners assume that, because they build an interesting website and have a good product or service, customers will come flocking. They forget to take into consideration the trust cost of acquiring the customer (CAC). Contrary to what many people assume, the cost of customer acquisition is actually higher than the lifetime value of that customer (LTV). You need to figure out a realistic CAC and then determine an actionable strategy to ensure that you acquire your customers for less money than they will generate.

8) Running Out of Cash

Close to one-third of businesses run out of cash, CB Insights analysts say. Some of this boils down to not having enough cash to begin with or failing to recognize the high costs of business development, but other times, it’s simply mismanagement of cash or struggling with cash flow issues, like slow-paying customers.

The bottom line: Secure the funding you need in advance and have a backup plan to bridge the gap in case cash issues emerge.

Get the Cashflow Your Startup Business Needs

Whether your startup is light on working capital, is coping with growing pains, or needs funds to pivot, Charter Capital can help and contribute towards a profitable business. By leveraging invoice factoring, your company can get paid for its outstanding B2B invoices instantly—no more waiting on customers to pay their bills. Learn more about how invoice factoring works or contact us for a complimentary rate quote.
September 28, 2020
Solutions for Small Business Bankers 2022

Charter Capital is a non-bank provider of working capital funds and accounts receivable factoring services to small businesses. Commercial bankers regularly refer to Charter Capital their small businesses customers constrained in their ability to qualify for conventional financing. By employing its factoring services, Charter Capital quickly becomes a predictable source of working capital for many such referrals.

The lending and funding problems that have beset retail banking are spreading into small-business banking as well. Overextended on credit lines that often were based on home equity, small businesses are increasingly hard-pressed to service debt in an atmosphere of slowing sales. Working capital, often held in bank deposits, is coming under strain as well.

Shifting into protective mode, banks are ratcheting up the emphasis on credit quality and core funding in their small-business portfolios. And this has created a particular problem for small-business banking officers, who are being redirected from a former bull market for loans to what increasingly is a bear market for deposits.

Small Business Bankers Problem Solved –

Charter Capital provides incentives to small businesses to maintain their deposit relationship with the referring bank. The banker helps the small business establish an alternative source of funding and preserves the deposit business it would otherwise most certainly lose to the competition.

September 8, 2018
Wall St. Megamergers Can (and Do) Affect Even Small Businesses
In baseball, it’s often said “you can’t tell the players without a scorecard.” What that means is that the lineup and roster changes so often that your favorite home team player may be here today and gone tomorrow.

In the business world, it’s gotten that way with companies and brands. Thanks to deregulation, major mergers and acquisitions have replaced or erased many long-time familiar names and created a host of new ones. And it’s not just big companies swallowing smaller ones. The smaller ones are gobbling up the big ones, too. Where once “too big to fail” was the buzzword of the day, now it may as well be “who’s next?”

The news is filled with daily stories of megamergers and superacquisitions. And why not? It makes for exciting copy and video clips. Here are just a few of the dozens of major mergers that happened in 2017:
- Pharmacy retailer CVS buys health insurance giant Aetna.
- Internet retailer Amazon takes over organic grocer Whole Foods.
- Cereal-maker General Mills grabs pet food manufacturer Blue Buffalo.
- Health insurer Cigna acquires pharmacy benefits manager Express Scripts.
- Magazine publisher Meredith absorbs media titan Time, Inc.
- Grocer Albertson buys competitor Rite Aid.
- Tech giant Broadcom acquires Qualcomm.
- These are just some of the more prominent.
Obviously there are scores more mergers – enough to fill this entire story, and maybe the next one, too. So there’s a lot of conjoining and getting together in the world of big business. How does a megamerger affect the small- or medium-sized business?

A small business isn’t usually going to be competing directly against a megabusiness. And a medium-sized one may occasionally go head-to-head with a global titan. Many small- and medium-sized businesses have carved a specialty niche in the marketplace, one that is not well served by one of the giants. However, despite the apparent lack of much of connection, megamergers do often negatively impact small and medium-sized business and their bottom lines. For this reason, the smart ones scan the daily headlines looking for impeding such mergers so they can plan for the aftermath on their operations.

Related Article: It’s Small Companies, Not Big Business, That Create Jobs

What is the potential negative impact? The companies have often carved a niche and become suppliers to the corporate Goliaths. After the merger, the acquiring company frequently makes decisions on vendor redundancies. If the acquiring company is more comfortable with its own supplier, it will opt to keep it rather than switch to the vendor of the purchased company. That, of course, means the redundant vendor is now out of a potentially lucrative contract post-merger. If the lost contract was large enough, it could even kill a small or even a medium-sized business.

Layoffs at the merged big company following the acquisition also could affect future business. If the small or medium-sized business has established a good working relationship with a buyer, the smaller outfit could lose a champion if that buyer is later laid off due to the merger. When a contract comes up for renewal or the smaller company wants to expand sales, it may have to deal with someone either unfamiliar with them or even potentially hostile towards them, jeopardizing a valuable account.

Another potential trouble spot for a smaller vendor company dealing with a post-merger megafirm is getting paid for its services. Where the small company’s first client may have paid invoices every 30 or 60 days, the new supersized giant may decide it will only pay every 90 to 120. This can put a serious crimp on a smaller firm’s cash flow and ability to operate.

Then there is the other side of the coin. Rather than the large, merged company being a customer of the smaller firm, it’s the opposite – the small company relies on the megacorporation to supply it with a valuable component. Combining two companies of any size is a long, difficult process, fraught with confusion. If the large company suffers any inefficiency after a merger, such as in shipping out product or customer service, this could negatively impact the smaller company. Perhaps the new supply chain is not well thought out and as a result, the small company does not receive a needed shipment in time to complete its own manufacturing or customer service process. It could then face angry clients and lose business of its own due to now suddenly unreliable big business suppliers.

So, what potential megamergers and acquisitions lurk on the horizon? Some news sources say Salesforce will look to buy software company Mulesoft and Amazon is eyeing e-commerce retailer Wayfair. However, predicting the weather is often more accurate than trying to figure out the next corporate conjoining. Mergers and acquisitions is a fast-paced topic, and what could be a potential deal today could be reduced to an unfounded rumor tomorrow.

Much like the baseball scorecard mentioned at the beginning of this article, to keep track of all of them would require a stack of blank scorecards, a school’s worth of sharpened pencils and maybe even a crystal ball.
April 3, 2018