Charter Capital

Tag: invoice factoring

Invoice Factoring is a when a business sells its accounts receivable to a third party at a discount.

  • 9 Proven Customer Retention Strategies for Small Businesses

    9 Proven Customer Retention Strategies for Small Businesses

    9 Proven Customer Retention Strategies for Small Businesses

    If you’ve ever heard someone from your sales team the moment after a sale is closed, the hoots and hollers coming from the whole department make it clear how monumental it is to close a deal. The sales process can be lengthy, and it truly is a team effort to get a prospect to the finish line. Yet, the same energy is not typically seen in terms of customer retention. It should be. On this page, we’ll walk you through why developing strategies for customer retention is one of the most important things small businesses can do and cover nine proven customer retention strategies anyone can apply and get results from.

    What is Customer Retention?

    Each time you gain a new customer, it’s called acquisition. Each time you lose a customer, it’s referred to as attrition. The time between these two events is the retention period.

    Naturally, the greater the span or the longer customers are retained, the better it is for your small business. Customer retention strategies center on this concept – finding ways to keep customers with your business for longer periods of time.

    How to Calculate Your Customer Retention Rate

    Customer retention is often measured on a monthly, quarterly, or annual basis using the following formula:

    Customer Retention Rate = (Total # of Customers at the End of the Period – New Customers Acquired) / Customers at the Start of the Period

    Why Customer Retention Matters

    All too often, businesses focus solely on customer acquisition. While it’s true that your business can’t grow without a steady flow of new customers, all the effort that goes into attracting new customers is wasted if they leave right away. Moreover, your existing customers, not your new ones, are likely greater contributors to your business’s growth and profit.

    For instance, the probability of selling to an existing customer is 60 to 70 percent, while the likelihood of selling to a new prospect is between five and 20 percent, per invesp. Their research further notes that existing customers are 50 percent more likely to try new products and spend 31 percent more. It also costs up to 25 times more to attract a new customer than to keep an existing one, according to Harvard Business Review (HBR).

    For these reasons, businesses that improve customer retention also see higher revenue and greater profit. Just a five percent boost in retention increases profit between 25 and 95 percent, according to Bain and Company.

    The Importance of Retention in Business Growth

    For many small businesses, the key to long-term growth and success is not just about acquiring new customers but effectively retaining the current ones. Retention marketing, often overlooked, plays a pivotal role in boosting customer lifetime value. An excellent customer service experience, combined with a solid customer retention program, can be your secret weapon to keep them coming back. Implementing customer retention strategies that work, especially strategies tailored for small businesses, can significantly reduce customer churn. Engaging with every customer individually, understanding their needs, and promptly addressing customer complaints can create a customer experience that cultivates loyalty. Harnessing customer feedback, employing tools like customer relationship management, providing exceptional customer service, and knowing how to ask for the next customer order in a natural, helpful way are all part of a holistic approach to increasing customer retention rates. As a small business owner, embracing these strategies can improve customer retention and amplify repeat business, enhancing overall customer value. Remember, it’s not just about the first purchase; it’s about creating an environment where customers are more likely to engage with your business again and again.

    9 Proven Customer Retention Strategies for Small Business Owners

    It’s easier than you might think to weave proven customer retention strategies into your everyday activities. Below, we’ll cover nine areas to address, so you can start building a stronger business immediately.

    1. Onboard Thoroughly

    Onboarding is more than just an official welcome into your customer family. The more comfortable someone is with your product or service, and the more they leverage it, the more likely they are to stick with it. Work with your customer service and product development teams to identify new customers’ struggles and areas of low adoption. Then, explore ways to educate newcomers. While some, especially SaaS companies, may benefit more from training, others can address onboarding through educational emails or videos sent at specific intervals after someone becomes a customer.

    2. Develop a Deep Understanding of Your Customers’ Expectations

    Your customers come to you with their own ideas of how your product or service should work, their preferred methods of communication, and how quickly your team should address concerns. The more you understand their expectations and proactively rise to meet them, the less friction your customers will experience and the more likely they are to stick with you.

    3. Encourage Customer Feedback and Learn from It

    Nine in ten customers say brands should offer the opportunity to provide feedback, according to Microsoft surveys. Yet, many don’t request feedback, and more than half of customers say brands don’t take action even if they provide insights.

    Reach out to your customers at critical points in their journey, such as immediately after a sale, during onboarding, and a few weeks or months after. This simple act will make 77 percent of customers view your brand more favorably, Microsoft research shows.

    Net promoter surveys and scores can provide a wealth of information too. These are one-question surveys that say something like, “How likely are you to recommend our product/ service/ brand to a friend/ family member/ colleague?” The customer is then asked to provide a score between one and ten, with ten being the most likely and one being unlikely. Those who answer with a score between one and six are considered detractors. A seven or eight represents a passive answer. Those who provide a rating of nine or ten are considered promoters. A net promoter score (NPS) is calculated by subtracting the total detractors from the total promotors.

    NPS scores are often regarded as the leading predictor of long-term business success. Typical scores range from 25 to 30 and vary by industry. Because the survey takes just seconds to answer, you’re likely to get more responses and can conduct surveys on an ongoing basis quite easily.

    4. Be Responsive, Even When Feedback is Negative

    “Your most unhappy customers are your greatest source of learning,” Bill Gates once said. Use the information they’re entrusting you with to develop your offerings and meet their needs better.

    Regardless of whether you can act on their feedback, always express appreciation for their time and effort. You may not always be able to resolve a concern, but sometimes customers are satisfied simply by feeling heard.

    5. Incentivize Customer Loyalty and Referrals

    Four in five people say they’re more likely to stay with a brand that offers a customer loyalty program, according to Nielsen research. Create a loyalty or rewards program that suits your brand. For instance, you might offer perks for customers who have stayed on a subscription plan for an extended period or award points for each purchase.

    Referral programs can also be a boon for your business and retention. A referred customer is 18 percent more loyal than one who comes to your business through other channels, according to Annex Cloud. Referred clients have a 37 percent higher retention rate and are four times more likely to refer more customers to your business too. Tailor your referral program to your business model. Some businesses, such as professional service companies, tend to do best with programs that offer cash payouts for each referral, while others, such as retailers, usually have greater success by providing discounts and free products for each referral. 

    6. Invest in Employee Development and Satisfaction

    Happy employees create happy customers. Researchers looked at Glassdoor ratings for companies in one HBR study. They found that a single-star increase in employee satisfaction correlates with a three-point increase in customer satisfaction. Loyalty also gets a boost when employees are more engaged.

    Moreover, happy employees will stay with your company longer, which gives them lots of time to build up their knowledge of your philosophies and product, allowing them to serve your customers better and boost satisfaction.

    7. Prioritize Building Trust with Your Customers

    More than 80 percent of customers say trust is an important factor in their decision to support a brand, per Edelman research. Moreover, customers who trust your brand are significantly more likely to promote it, stay loyal, and defend your company if need be.

    Trust doesn’t come easily, however. It’s built over time as people see you follow through on your promises and stay true to your mission. If your brand supports specific causes, share what you’re doing to help. You can also share testimonials and case studies demonstrating times you’ve followed through on your company mission, even when challenging.

    8. Give Your Customers Convenience

    The absence of friction is everything in today’s busy world. Walk through your typical customer journey to identify and eliminate potential friction points. For instance, some brands allow customers to pick up orders rather than have them shipped to speed up timelines. Others provide self-service ordering, scheduling, and payment tools.

    9. Offer Your Customers Better Payment Terms

    If your clients make payments after goods or services are delivered, take a hard look at your payment terms and how they impact your customer relationships. If you can give them longer windows to pay or ease their burden in some way, especially if competitors aren’t doing so, you can win their loyalty for life.

    Consider Invoice Factoring to Reduce Your Accounts Receivable Burden

    Most small businesses can’t afford to wait for payment. If you’d like to offer your clients better payment terms but can’t due to cash flow concerns, invoice factoring can help by providing you with cash for your receivables. With factoring, you sell your unpaid invoices to a third party, known as a factor or factoring company. The factoring company immediately pays you most of the invoice’s value, then waits for your customer to pay. When the invoice is paid, you receive the remaining balance minus a nominal factoring fee.

    Improve Your Customer Retention Strategy with Invoice Factoring

    Charter Capital, a leading invoice factoring company, can provide you with an immediate cash injection to implement the strategies outlined here or allow you to provide your customers with better terms. To learn more or get started, request a complimentary rate quote.

    9 Proven Customer Retention Strategies for Small Businesses Infographic | 9 Proven Customer Retention Strategies for Small Businesses

  • Capitalize on Momentum: 5 Tips for Scaling Your Business

    Capitalize on Momentum: 5 Tips for Scaling Your Business

    Scaling Up a Business: 5 Ways to Capitalize on Momentum

     “The most powerful ingredient in business is positive momentum. Get it and keep it.” Although this powerful quote can’t be attributed to any one person, the sentiment stands. Scaling up a business is challenging. Leveraging the momentum you’ve built makes it easier and opens new opportunities.

    But, what does momentum in business look like, and how can you capitalize on momentum to amplify the results you’re getting? Give us a few minutes, and we’ll walk you through these concepts and provide some business growth strategies to get you started.

    Recognizing the Right Time to Scale Your Business

    • Proven Success: If your business consistently hits its targets and shows stable growth, it’s a sign you’re doing something right.
    • Rising Demand: An unmistakable sign is when the demand for your product or service consistently exceeds your current capacity.
    • Replicable Processes: When you can standardize and replicate business operations efficiently across different scenarios, you’re ready.
    • Financial Health: Examine your balance sheet. If revenues are steadily increasing and you have a buffer to absorb potential scaling challenges, it might be time.
    • Skilled Workforce: If you’ve got a team that’s efficient, adaptable, and can handle the challenges of expansion, you’re a step ahead.
    • Feedback and Data: Your customers’ feedback and data analytics might be suggesting a shift. If there’s a consistent request for expansion or more offerings, heed the call.

    Scaling is a big decision, but recognizing these signs can offer clarity on when it’s the right move.

    1. Strengthen Your Core Business Procedures

    It’s easy to have rose-colored glasses when scaling up a business, as if all your problems will evaporate with increased revenue. In reality, your problems will scale with you. Minimize the risk of this by getting the right processes and people in place now.

    Remain True to Yourself and Your Mission

    We know that authenticity is vital for businesses. Customers are willing to pay more for your products or services when they believe you’re authentic, as HBR reports. It’s essential in building trust and when attracting and retaining customers. It also makes a massive difference in how you and your team feel about the work that you do.

    Businesses must make decisions at the speed of light when a high-growth period kicks in, and we don’t always see how we’re slipping away from our core values until we’ve ventured so far off our intended path that we can’t even tell how we arrived there. It may start as compromising on the quality of raw goods to ensure supplies arrive on time or to stretch a budget and ultimately result in a subpar product. Or, maybe it’s a shortcut in your customer service processes that diminishes the customer experience. Consider whether the new process or item aligns with your goals as you face these decisions. Don’t compromise if it doesn’t.

    Focus on Building a Solid Team

    Have a strategy in place for recruiting a solid team. Identify which roles you’ll need to fill and the criteria you’ll use to determine your readiness to hire beforehand. It may also be helpful to draft your job descriptions now while you have time, though expect to revamp them later as your needs for the role become clearer.

    Invest in Your Employees

    As you’re hiring, make sure you’re offering competitive wages and bringing employees into an environment where they can do their best work. Because effective team building has been shown to improve teamwork, morale, and more, planning your strategy for this and employee development in advance is a good idea.

    2. Leverage Technology and Innovation

    Leveraging technology and innovation in business is crucial to success. It can help stretch your dollars when scaling up a business and ensure your money is going where it will have the greatest impact.

    Make the Most of Modern Tech Tools

    There are a multitude of online tools that can streamline processes and save your business money. For instance, investing in a project management tool increases the odds of reaching your goals by 21 percent, according to the Project Management Institute. Bookkeeping and accounting tools can make managing your money easier and getting paid faster. You can even boost sales by 29 percent by implementing a customer relationship management (CRM) platform, per HubSpot data.

    While there may be upfront costs as you invest in new tech, it usually saves you money in the end through increased efficiency and sales.

    Consider Outsourcing Certain Tasks

    Outsourcing benefits businesses in lots of ways. For instance, you may outsource your marketing to ensure an expert handles it and that you get maximum ROI. Or, you might outsource customer service to provide customers with a broader range of options and save money. These options also allow you to focus more on the daily aspects of running your business.

    One area business owners often overlook when it comes to outsourcing is additional services provided by their current vendors and partners. For example, if you work with an invoice factoring company like Charter Capital, your payments are collected for you. You’ll also qualify for free client credit reports, so making informed decisions about how much credit you extend to your customers is easier.

    3. Emphasize Customer Experience

    Businesses that focus on customer experience (CX) achieve up to a 15 percent increase in revenue, according to Zippia. Their customers are willing to pay 16 percent more, too. Focusing on CX while your business is on the smaller side allows you to replicate great experiences as you grow, so your business scales faster and more solidly.

    Create Comprehensive, Updated Customer Profiles

    Earlier, we talked about investing in a CRM. This is where it really starts to pay off. A CRM that’s loaded with customer data will help you improve virtually all areas of your business. For instance, you can track their interest in products and services, market to specific groups, track and improve your sales cycle, and more.

    Ensure a Stellar Customer Service Setup

    Consider the whole customer journey as you set up your customer service processes.

    • Onboarding and Training: Ensure customers understand how to use your products or services.
    • Self-Service Tools: Provide customers with tools they can access 24/7 to learn more about your offerings or troubleshoot issues, such as video tutorials, user guides, and chatbots.
    • Reactive Customer Service: Ensure customers can easily reach you through their preferred channel if they have an issue. Phone, email, social media, and live online chat may all deserve a place in your strategy.
    • Proactive Customer Service: Request feedback from your clients and ask how their experience is going. This step is vital because not all dissatisfied customers will complain. Plus, it shows your clients you care, which improves the experience even more.

    4. Understand Your Business Financials

    Cash is tight when you’re scaling up a business. You have new and increased expenses that you must pay with the money you earned yesterday, when your revenue was lower. This is why cash flow issues, not a lack of profit, hurt most growing businesses. Address a few key areas to ensure you have enough cash on hand while you’re scaling.

    Know What’s Driving Your Financial Decisions

    You’ll need to do some soul-searching or work with an accountant to determine what’s driving your financial decisions and if you’re serving your company’s best interests. One common issue in growing businesses is the tendency to put off uncomfortable truths or difficult situations. For instance, you might know money is tight and have an idea that you may need to do something about it, but put it off until you can’t make payroll. This can be a slippery slope because businesses in this situation often have knee-jerk reactions and accept any funding they can get in time, even if it’s costly or damages the business in the long run.

    Your financial behavior may be different. Nevertheless, it’s always a good idea to examine how you’re spending, managing, and obtaining funds to see if there are patterns you can improve.

    Evaluate Your Trade Credit Terms

    Businesses don’t always recognize that they’re extending credit when invoicing clients after goods or services are delivered. However, if you invoice, that’s precisely what you’re doing. Unfortunately, businesses sometimes take advantage of this system by paying late or not paying until right before the due date. A growing business cannot withstand this kind of strain for long. Reevaluate your payment terms to see if you can accelerate payments by shortening the payment window, adding late fees, or leveraging other tactics.

    Explore Invoice Factoring as a Cash Flow Solution

    If you can’t adjust your trade credit terms or doing so isn’t enough, invoice factoring may be your ideal cash flow solution. Instead of relying on your clients to pay faster, you’ll sell your invoices to a factoring company like Charter Capital at a discount. You’ll receive most of the invoice’s value upfront and can spend the cash in whatever way makes the most sense for your business. Then, you’ll receive the remaining value of the invoice, minus a small factoring fee, when your client pays their invoice.

    This approach works particularly well for growing businesses because it’s not a loan. Therefore, you’re not subject to the same rigid qualifications. Most businesses are approved. It also doesn’t result in debt that your business must pay off like a loan does. Plus, you can set factoring up in advance and not use it until needed. It helps eliminate knee-jerk financial decisions because of this.

    5. Enhance Your Marketing Efforts

    It may seem odd to double down on marketing efforts when business is going strong, but this is the perfect time. You have something happening right now. Maybe demand increased, a competitor shut down, or some other condition changed that is accelerating your business growth. Most of these situations also mean that any marketing initiatives you kick off now will be more effective than usual and allow you to capture an even greater slice of the market.

    Experiment More in Marketing and Advertising

    Try funneling some of the additional revenue into marketing and advertising channels you haven’t tried yet or leveraging a new approach to channels you’ve had lackluster results with in the past.

    Encourage Your Customers to Do Your Marketing

    Word-of-mouth marketing is one of the most powerful forms of marketing. Your influx of business means you have a whole new group of people who can help spread the word. On a basic level, you can increase word-of-mouth marketing simply by asking customers to leave reviews for your business online. Then, build a formal referral program. These programs incentivize customers to refer their friends, family, and associates to your company. Some brands offer customers a discount or free item for each referral, while others pay cash rewards.

    Collaborate with Another Brand for Mutual Benefits

    A referral partner program works similarly to a customer referral program. In this case, however, it’s usually other businesses or professionals sending referrals rather than your clients. It’s a very effective way to get more leads or sales and can easily be launched at the same time you begin your referral program for customers. Formal factoring referral programs like those offered by Charter Capital support partner relationships that generate qualified leads while delivering real financial value.

    The more you network with other brands, the more you’ll likely find co-marketing opportunities. For instance, you may be able to work with a brand that shares your audience on webinars, research publications, podcasts, or blogs.

    Successfully Scale Your Business With the Help of Charter Capital

    If you’re struggling to bridge cash flow gaps during rapid growth or want to kick off some of the initiatives covered here but lack the working capital, invoice factoring from Charter Capital can help. To learn more or get started, request a free rate quote.

    Scaling Up a Business 5 Ways to Capitalize on Momentum Infographic | Capitalize on Momentum: 5 Tips for Scaling Your Business
  • How to Create a Business Budget That Aligns with Your Goals

    How to Create a Business Budget That Aligns with Your Goals

    How to Create a Business Budget that Aligns with Your Goals

    Ready to take charge of your finances by budgeting for business? It’s probably easier than you think. A typical business budget focuses on just two things: forecast earnings and planned expenditures. Yet, it goes a long way to creating accountability for an organization, allows you to make more strategic decisions, and helps you stay on track to meet your financial goals.

    Unfortunately, nearly two-thirds of small businesses miss this crucial step, according to Small Business Trends. On this page, we’ll walk you through one of the most essential financial skills for business owners: the process of business budget creation, so you can cash in on all the advantages and help you align your budget with your business goals to achieve critical objectives faster.

    Aligning Your Budget with Your Business Goals is Essential

    A business budget can and should be about more than documenting your predicted income and expenses. Business budget planning, or the process of ensuring your budget supports your business goals, offers many benefits. It encourages the meticulous review of income sources, thereby facilitating an accurate calculation of the expected monthly income.

    You Will Spot Wasteful Spending Quicker

    A budget outlines all your business expenses. If you keep your objectives in mind as you review it, you’ll spot mismatches between how you plan to spend and how you should spend to reach your goals.

    It’s Easier to Allocate Resources

    A goal-aligned budget takes the guesswork out of where to apply funds. Cash goes to the items that support your goals.

    You Will Have Money When You Need It

    By design, your business budget puts money where you need it most. A good budget for business also includes a plan to save for unexpected expenses so that you can dip into it during an emergency.

    Collaboration Between Departments Improves

    The more involved your team is in the budgeting process, the more likely you are to break down silos and improve cooperation between department leaders. While you may initially face pushback from departments that want larger budgets, if they truly support the company and its objectives, they’ll quickly adapt to making the most of what they have and finding ways to share costs between departments.

    Why a Business Budget is Important for Startups, Too

    When your business is new, creating a well-structured financial plan early helps lay the groundwork for lasting stability. Unlike established companies with historical data, startups must often work from projected revenue and expenses, making early budgeting essential for managing cash, prioritizing spend, and understanding when to add up all your income versus when to subtract your operating costs.

    A startup budget should include both fixed costs and variable costs, like office rent versus contract labor, that may fluctuate with business activity. Identifying those early lets you track how each portion of your budget supports current operations or growth. It also ensures you’re ready for surprise expenses by building in a contingency fund, even if it’s small.

    Using a simple budget, even from free budget templates, can be a valuable tool to help keep early-stage founders focused on setting financial goals, funding product development, and responding to market shifts. A well-designed budget provides a clearer view of your available runway and supports smarter, more strategically aligned decisions, making it a critical asset for any startup aiming for business success.

    Types of Business Budgets

    There are several types of business budgets that you might use depending on your situation and goals. 

    Operating Budget

    Operating budgets are usually created first and are leveraged by businesses of all sizes to improve operational efficiency. They’re short-term planning tools focusing on revenue, expenses, and profits. For instance, the owner of a staffing company might compare its operating budget every month to see if it’s overspending on supplies. This requires a clear understanding of budgeting principles to ensure effective business budget planning.

    A typical operating budget contains your:

    • Sales budget
    • Production budget
    • Purchases budget
    • Direct materials budget
    • Direct labor budget
    • Manufacturing overhead budget (indirect labor, indirect materials, factory operating costs)
    • Ending finished goods inventory budget
    • Cost of goods sold budget
    • Non-manufacturing budget (R&D, design, marketing, distribution, customer service, administrative)

    Financial Budget

    Financial budgets are often created after the operating budget is complete and are leveraged mainly by larger companies to improve financial efficiency. They’re long-term planning tools that focus on cash inflow and cash outflow. A large manufacturing company, for example, might review its financial budget to determine its value in the context of a merger.

    A typical financial budget contains your:

    • Capital budget
    • Projected cash disbursement schedule
    • Cash budget
    • Pro-forma income statement
    • Pro-forma balance sheet
    • Pro-forma statement of cash flows

    Master Budget

    A master budget contains the operating and financial budgets and all their sub-budgets. For instance, a large oil and gas services company might use the master budget to help ensure managers of all departments are aligned.

    Cash Flow Budget

    Cash flow budgets can be created at any time and are leveraged by businesses of all sizes to ensure cash is being spent wisely. They’re short and long-term planning tools that focus on how and when cash flows in and out of the business during a specified period. This forms a key aspect of the monthly budget, so its accurate estimation is critical for the business’s financial health.

    A trucking company, for example, might use its cash flow budget to determine if it can cover fuel, labor, and other expenses related to accepting a new load before it receives payment from the last load.

    Static Budget

    In the business budgeting process, static budgets are fixed and contain only items that don’t change regardless of revenue or sales volume. A security firm, for instance, might pay the same licensing and bonding costs each year or pay to rent storage space for equipment. The owner may monitor the static budget to identify overspending and static expenses that are no longer needed. It is also in this stage where unexpected costs can be predicted and cash set aside to avoid any disruption in the operations.

    Enhancing Your Budget with Forecasting Tools

    Understanding why financial forecasting is important for your business is an essential first step, but you must also put that knowledge into action with the right tools and processes. Let’s take a look at how it’s done.

    How to Use Forecasting Tools to Improve Your Budget

    Forecasting tools can significantly enhance the accuracy and effectiveness of your business budget. These tools use historical data and market trends to predict future revenue and expenses, providing a more detailed financial outlook. For small business owners, integrating forecasting tools with your budget can help in identifying potential financial challenges and opportunities. This proactive approach allows you to adjust your spending plan accordingly, ensuring that your business remains on track to meet its financial goals. By using forecasting tools, you can create a more dynamic and responsive budget that supports long-term business growth.

    Best Practices for Financial Forecasting in Budgeting

    To effectively use financial forecasting in your budgeting process, start by collecting accurate historical data on your revenue and expenses. Use this data to identify trends and patterns that can inform your financial projections. Next, incorporate external factors such as market conditions and economic indicators that may impact your business. Regularly update your forecasts to reflect changes in your business environment, ensuring that your budget remains relevant and accurate. Engaging your team in the forecasting process can provide additional insights and improve the overall accuracy of your financial projections. By following these best practices, you can create a budget that is both comprehensive and adaptable to changing business conditions.

    How to Create a Small Business Budget

    In the context of business budgeting, certain types of business accounting software can make your budget for you. If you’re already using accounting software, check if it offers budgeting tools too. You can also pick up specialized budgeting software. If neither is available to you or you want to run the numbers yourself, create a detailed budget in a spreadsheet program such as Excel or Google Sheets.

    Identify Your Strategy

    Depending on your company goals, you may want to build a budget based on profit, growth, or cost control. Although all three may be important to you, narrow your focus to the area that matters most and choose the strategy that aligns with it.

    Budgeting for Profit

    If your primary goal is to increase profit, you’ll start with determining your profit goal and then set the budget to support it. In this case, you’ll allocate more of your total budget to items that boost sales without increasing expenses. For instance, a professional services company, such as a business consultancy, might increase the budget for advertising or invest in a CRM to help the sales team automate processes and focus more on the leads that are most likely to convert.

    Budgeting for Growth

    If your primary goal is supporting business growth, you’ll build a budget to help close gaps in your systems, processes, and people. For example, a manufacturing company might budget for equipment that will allow them to boost productivity or earmark additional funds for employee training and development.

    Budgeting for Cost Control

    Sometimes businesses need to focus on cutting costs for a short period due to an economic downturn or temporary market shift. Think of this as more of a selective pruning, as opposed to cutting all possible costs like a business facing financial trouble might do. For instance, a freight broker might set a budget for cost control if a natural disaster impacts key areas it serves, and no shipments are going in or out. In the short term, the freight broker might cut the marketing budget for that region or cut administrative costs due to the lighter workload.

    Review Historical Data and Create Revenue Projections

    If your business is established, explore historical data and your growth rate to calculate your projected revenue. Be sure to watch for seasonal shifts that also need to be reflected on your budget. If you don’t have historical data to draw from, research to see what businesses like yours typically earn.

    Be conservative with these figures when in doubt. It’s better to have a surplus later than discover you’re short on cash because you didn’t meet your revenue targets.

    Estimate Expenses

    Expenses fall into one of three categories: fixed, variable, and one-time. It’s helpful to break these up on your spreadsheet so it’s easier to identify how your money is spent. Again, you can look at historical data to determine your estimated expenses or draft a list of everything you think you’ll pay for and research costs.

    Fixed Expenses

    Often referred to as “overhead,” fixed expenses don’t change from one period to the next, regardless of your sales volume. Examples include your rent or mortgage, insurance, and most loan payments. Traditional employee salaries also fit into this category, though hourly and project-based labor do not.

    Variable Expenses

    Sometimes referred to as the “cost of goods sold,” variable expenses increase with sales volume. Examples include raw materials, supplies, commissions, packaging, delivery, and labor.

    One-Time Expenses

    Things that you don’t pay for more than once or only pay for periodically are considered one-time expenses. Examples include buying major equipment, purchasing a competing business, the cost of relocating, and logo design.

    Map it Out

    If you’re drafting it in a spreadsheet, list each month as a column and place your yearly total as the final column. Then, create groups of rows for revenue, fixed expenses, variable expenses, and one-time expenses, with a totals row at the bottom.

    You’ll likely see mismatches between your goals and anticipated expenses and may even see deficits in your totals. Adjust your budget as needed to ensure it aligns with your goals and keeps you in the positive.

    Perform a Budget Review Regularly

    Small businesses usually start creating their annual budgets about three or four months before the fiscal year begins. Give yourself time to work out the details and find something that fits your goals well. Once complete, review it every few months to ensure you’re on track, reallocate funds if needed, and cut costs if possible.

    The Importance of Regular Budget Reviews

    How Regular Budget Reviews Can Improve Financial Health

    Conducting regular budget reviews is vital for maintaining the financial health of your business. These reviews allow business owners to compare actual performance against budgeted figures, identify variances, and make necessary adjustments. By doing so, you can ensure that your spending plan remains aligned with your financial goals. Regular reviews also help in identifying trends in revenue and expenses, providing insights that can inform future budget planning. For small businesses, this practice can prevent financial shortfalls and support sustained growth by keeping the business agile and responsive to market changes.

    Steps to Conduct Effective Budget Reviews

    To conduct effective budget reviews, start by gathering accurate financial data from your accounting system. Compare this data against your budget to identify any discrepancies in revenue and expenses. Next, analyze the reasons behind these variances and determine if they are temporary or indicative of larger issues. Adjust your budget estimates accordingly and reallocate resources as needed to stay on track with your financial goals. Engaging your team in the review process can provide additional insights and foster a collaborative approach to financial management. Regular reviews, ideally conducted monthly or quarterly, ensure that your budget remains a dynamic tool that supports your business’s financial health.

    Additional Tips for Creating a Goal-Aligned Business Budget

    Now that we’ve got the basics down let’s explore a few tips to make creating a budget easier or more effective.

    Consider Your Long-Term Vision and Goals

    Knowing how to stay focused on business goals, especially when they may seem conflicting or will be achieved in different timeframes, is key. For instance, if you have a short-term cost-control goal, but also have a long-term goal to reach a particular growth stage by a specific date, then you need to consciously funnel cash into growth on an ongoing basis. Don’t shortchange your long-term vision to support short-term goals and budgets.

    Prepare for Unexpected Expenses

    Leave some room in your budget for unexpected expenses. Ideally, you’ll pay a savings account or similar on a recurring basis, just like any other expense, and grow your emergency fund over time.

    Involve the Team

    Businesses can become siloed as they grow. Involving leaders from each department breaks down those silos and opens up discussions about how the groups can best support one another to help the company reach its goals.

    Leveraging Technology in Business Budgeting

    Top Budgeting Software for Small Businesses

    Leveraging technology can significantly enhance the budgeting process for small businesses. Budgeting software offers advanced features such as automated expense tracking, real-time financial reporting, and integration with other business systems. For small business owners, these tools simplify the creation and management of budgets, making it easier to maintain a clear financial overview. Popular software options like QuickBooks, Xero, and FreshBooks provide user-friendly interfaces and customizable templates that cater to various business needs. Using such technology ensures accuracy in budgeting, saves time, and allows business owners to focus on strategic planning rather than manual data entry.

    How to Integrate Budgeting Tools with Your Existing Systems

    Integrating budgeting tools with your existing business systems can streamline financial management and improve efficiency. Start by selecting budgeting software that is compatible with your current accounting and financial systems. This integration allows for seamless data transfer, reducing the risk of errors and ensuring that your budget reflects real-time financial data. Additionally, integrated systems provide comprehensive financial reports that offer deeper insights into business performance. For small businesses, this means having a holistic view of finances, which aids in making informed business decisions and planning for future growth. Implementing these tools effectively can transform your budgeting process, making it more accurate and efficient.

    Bridge Gaps in Your Business Budget with Factoring

    Your business may find itself short on cash at some point despite your best efforts with budgeting. This can happen when a company grows quickly, faces an unexpected expense, business slows, or customers pay slower than expected. Invoice factoring can help you bridge these cash flow gaps by providing instant payment for your B2B invoices. To learn more or get started, request a complimentary rate quote from Charter Capital.

    The 5 Steps to Create A Small Business Budget Infographic

  • 10 No-Nonsense Ways to Build Small Business Credit

    10 No-Nonsense Ways to Build Small Business Credit

    10 No-Nonsense Ways to Build Small Business Credit

    You’re already ahead of the curve if you’re trying to build small business credit. In all, 45 percent of business owners aren’t even aware they have a business score, per Small Business Administration (SBA) research. Seven in ten don’t know where to find information about their score, and eight in ten don’t know how to interpret it.

    We’ll walk you through that information on this page, provide some business credit tips, and show you how to build business credit correctly.

    Building a Strong Business Credit Profile: Your Path to Financial Trust

    Starting the journey to build business credit is a fundamental stride every small business owner should take to lay down the financial bedrock of their new business. Your business credit score is a reflection of your company’s creditworthiness, which can significantly influence your ability to secure a business loan or a line of credit. Unlike your personal credit score, a business credit score is tethered to your business’s financial behavior.

    Initiating this journey involves a few important steps. Firstly, it’s crucial to register your business and open a business bank account. This not only helps in keeping your business and personal finances separate but also is a significant step to establishing credit for your business. Acquiring an employer identification number (EIN) is essential as it’s required by the Small Business Administration and helps credit bureaus identify your business.

    The cornerstone of building your business credit is to ensure that all business-related transactions, right from credit cards to lines of credit and loans, are conducted through your business bank account. It’s advisable to open a business credit card and use it wisely; timely payments on this card will reflect favorably on your business credit report.

    Furthermore, it’s advisable to apply for business loans or a business line of credit that reports your payments to the credit bureaus, specifically the three major business credit bureaus. This, along with ensuring you pay your bills on time, will help in building a good business credit score over time.

    Your credit profile is like your business’s financial resume, and having a good credit score can open doors to better financing options. Ensure to monitor your business credit by reviewing your business credit report regularly, rectifying any discrepancies, and keeping an eye on your credit utilization rate to keep your credit in good health.

    Lastly, maintaining a business phone number and physical location of your business can further enhance your credit profile. These steps are not exhaustive but are a robust way to establish and build business credit, laying a strong foundation for your business’s financial future. By adhering to these guidelines, you’re not just building credit; you’re building the financial credibility and health that can help your business flourish in the long run.

    What is Business Credit?

    You’re probably at least a little familiar with your personal credit score. This is a number assigned to you by one of the three main credit bureaus: Equifax, Experian, and TransUnion. All three use the FICO score algorithm to determine an individual’s credit rating. FICO scores can be anything from 300 to 850, Experian reports. If you have a score of 670 or greater, you’re considered to have “good credit.” If you’re at 740 or higher, your credit is “very good.” A score of 800 or more is “excellent.” The average score presently sits at 714 but changes with the times. For instance, it plummeted to just 686 in the wake of the 2008 recession, FICO notes.

    When you do things to demonstrate that you’re responsible with money and the risk of non-payment lessens for a potential lender, your score goes up. Your score can be checked under a myriad of situations. For instance, a lender will review it when you apply for a loan. Many service providers, such as power and phone companies, will check your credit before agreeing to bill you after services are rendered. Sometimes prospective employers will even check your credit before hiring you.

    Business credit is similar. It’s a measure of how well you’ve historically managed cash, which many entities use to gauge the risk of lending to you or doing business with you.

    How Business Credit Works

    Equifax and Experian are still major reporting bureaus when moving into business credit reporting. However, the third major entity is Dun & Bradstreet (D&B). The scale used to measure credit is a little different too. 

    Whereas your personal credit score will fall between 300 and 850, business credit scores run on a scale of 0 to 100. You’ll have to have a business credit score of at least 80 to be considered “low risk.” Anything from 50 to 79 is considered “medium risk.” If you miss that threshold, you fall into the “high credit risk” bracket.

    Most entities concerned about your credit score will look exclusively at your business credit score. However, some will use your personal credit score under certain circumstances, and others will check both, then use the lower of the two to determine your risk.

    Things That Impact Your Business Credit Score

    • Payment habits
    • Credit utilization
    • Outstanding balances
    • Total number of trade/ payment experiences
    • Ongoing trends related to the above
    • Public records regarding your credit or debts
    • Business demographics (size of business, years on file, etc.)

    Why is it Important to Build Business Credit and Maintain it?

    It takes a considerable amount of time to build new business credit. Even established businesses will need 12 to 18 months to improve their scores, according to SBA research. Because of this, building business credit fast is challenging, if not impossible. Instead, you should always work to boost and maintain a high score. It’s unlikely that you’ll be able to correct your score in time if you wait until it’s a determining factor for something you need. A few things that your business credit score impacts are covered below.

    Funding Approval

    Just 53 percent of businesses that apply for funding receive the amount they need, according to the latest Small Business Credit Survey. A total of 21 percent don’t receive any funding at all. This aligns with SBA data that shows 20 percent of business loans are denied due to business credit. In other words, your score can be the sole determinant of whether you qualify for a loan if you need one.

    Trade Credit Access

    Many vendors and suppliers are happy to bill you after goods or services are delivered and allow you some time to pay the balance. However, this is usually contingent on whether your business has good credit.

    Interest and Cost to Borrow

    Even if you manage to qualify for a loan with less-than-ideal credit, your interest rate will be higher. That means you can pay considerably more to borrow than you otherwise would have.

    Insurance Premiums

    Insurance companies will typically look at your credit to decide if they’ll offer you a policy and to determine your premium. Those with bad credit may be denied or will often pay considerably more.

    Profitability

    Businesses that don’t qualify for loans often turn to costly forms of lending and troublesome debts that are hard to pay off. This, paired with increased borrowing and premium costs, can seriously eat into your profit.

    Funds Management

    When businesses don’t have strong credit, the business owner often pays out of their own pocket or obtains financing in their own name. For instance, 46 percent of small business owners use their personal credit cards for business expenses, according to the SBA. When funds are comingled this way, it’s difficult to split them apart for tax purposes. You may be placing your personal assets at risk too.

    10 No-Nonsense Ways to Build Small Business Credit

    Now that we’ve covered how business credit works and its impacts, let’s explore how to establish business credit for the first time and how to build and maintain it.

    1. Register Your Business

    The first step is to decide which business structure is best for your company. Your business structure impacts the laws that apply to your company and how you pay taxes. It also affects your access to funding. Because of this, it’s a good idea to consult with a business attorney if you’re unsure which one to select.

    Most businesses will need to register with state and local governments next. In rare circumstances, such as if you intend to operate as a non-profit or are creating an S corp, you’ll also need to file with the IRS.

    2. Apply for an Employer Identification Number (EIN)

    Most businesses must also apply for an Employer Identification Number (EIN) with the IRS. Per SBA guidance, you should apply for an EIN if your business:

    • Operates as a corporation of partnership
    • Pays employees
    • Files tax returns for employment, excise, or alcohol, tobacco, and firearms
    • Withholds taxes on income, other than wages, paid to a non-resident alien
    • Works with certain types of organizations, such as non-profits and those involving trusts, estates, real estate mortgage investment conduits, farmers’ cooperatives, or plan administrators

    While this won’t directly improve your credit score, it’s essential for doing business in many cases and will likely be a requirement if you need a license to operate too.

    3. Check in with the Credit Bureaus

    Reach out to Experian, Equifax, and Dun & Bradstreet to make sure they have accurate information for your business and get a copy of your credit report from each.

    If you haven’t done so, request a D-U-N-S number from D&B. It’s a unique identifier, similar to a social security number or EIN, but issued only by Dun & Bradstreet. It’s linked to the credit score they give you, known as a PAYDEX score. Obtaining a D-U-N-S number is essential when establishing business credit because D&B doesn’t score you until you have one. Many entities, from lenders to vendors and even the government in some cases, won’t work with you unless you have a D-U-N-S number.

    Once you’ve run a preliminary check and ensured all information on your credit reports is accurate, revisit your reports once a year to check for errors. You can check back more often when proactively taking steps to boost your credit score, but remember that it typically takes 12-18 months to see improvement. Don’t expect large swings every month.

    4. Consider a Business Credit Card

    A business credit card can be a great business credit builder. Many rely on your personal credit score rather than your business credit score to determine approval, making it easier for some to qualify. Plus, your credit score will get a boost if you make all your payments on time.

    However, the catch is that many business owners don’t keep up with their payments or spend more than 30 percent of their available credit and carry large balances month-to-month. This approach can actually harm your credit and is usually a very costly way to borrow. Plus, many people find themselves in the trap of only paying interest each month and never getting the balance down. If you habitually do this with your personal cards, it might be best to skip opening one for your business when you’re trying to improve your score.

    5. Pay Your Creditors Early

    Paying on time isn’t enough if you’re trying to build business credit. You must pay early. If you pay on the due date, the best PAYDEX score you can get is 80, as Forbes reports. If you’re triaging your bills and trying to decide which to pay early, targeting the larger balance may be better too. D&B considers the balance when adjusting your score. For instance, a $10,000 invoice paid early will boost your score more than a $1,000 invoice paid early. Equally, your score will take a bigger hit if the $10,000 invoice is paid late than it would have if the $1,000 invoice were paid late.

    6. Avoid Judgments and Liens for Your Business

    Avoiding judgments and liens may sound like an easy way to build business credit, and it is to some degree, but 54 percent of businesses report having trouble covering operating expenses, and 32 percent say paying debt is difficult, per the latest Small Business Credit Survey. A few tips that may help in this respect include:

    • Avoiding debt
    • Budgeting carefully
    • Managing general contractor relationships well

    7. Monitor Your Credit Usage

    When trying to build credit, small-business owners often overlook the importance of keeping balances low. Ideally, you want to keep your credit utilization below 30 percent. This means you’re not using more than 30 percent of the funds available on financial tools like credit cards and lines of credit. Spending more than this can make you look like a risky borrower.

    Additionally, you should maintain a debt-to-income ratio of no more than 50 percent. If you exceed this, lenders will be concerned that you can’t afford more debt.

    Both these things can negatively impact your overall score too. Keep an eye on your usage and debt ratios and make changes if they start to climb.

    8. Borrow from Lenders that Report to Credit Bureaus

    Many assume that all payments are reported to credit bureaus, but this isn’t always true. Some lenders don’t report at all, while others only report when something goes wrong. To make sure you’re getting credit-boosting power from every payment you make, ensure any lender you borrow from reports your timely payments.

    9. Establish Trade Lines with Your Suppliers

    Suppliers who offer you a line of credit or allow you to pay after goods are delivered can help you in two huge ways. First, anyone you have financial transactions with can report you to credit bureaus like D&B. So, if you have a good relationship with yours, you can simply ask them to report your history and get an automatic boost.

    Additionally, vendor financing options don’t usually appear on reports as lines of credit. Although people who check your reports can see the invoices owed, any “borrowed” funds don’t count toward your credit utilization. This can make you look like a more appealing borrower when applying for a loan.

    10. Build Small Business Credit with Invoice Factoring

    Invoice factoring may be the best way to build business credit because it offers many benefits. For instance, you can use your factoring cash to pay your invoices on time or early and leverage factoring to stabilize cash flow, so it’s easier to manage your money. Plus, you don’t always need a credit check every time you factor. This is different from a loan and is a crucial distinction because credit checks can hurt your score for some time. Lastly, factoring provides debt-free funding. It’s an advance on your B2B invoices, and the balance is cleared when your client pays their invoice, so there’s nothing to pay back. That keeps your credit utilization and debt ratio lower and makes managing your cash easier.

    If it sounds like invoice factoring can help solve some of the issues holding you back from having the business credit score you deserve, contact us for a complimentary rate quote. 

  • Good Debt vs. Bad Debt for Small Businesses: What’s the Difference?

    Good Debt vs. Bad Debt for Small Businesses: What’s the Difference?

    Good Debt vs. Bad Debt: Small Business Guide

    Is debt negative or positive for a small business? With the average small business carrying around $195,000 in debt, per Experian, and business debts skyrocketing in recent years, according to the Federal Reserve, it’s a question worth asking. However, the answer isn’t always clear-cut. On this page, we’ll explore how business debts work, go over some differences between good and bad debt, and cover how to get out of business debt if you’ve found yourself in an unfavorable situation.

    What is the Difference Between Good Debt and Bad Debt?

    Let’s begin by addressing the big question: “Is debt positive or negative?” It can actually be both. The key difference between good and bad debt is what it does for your business.

    What is Good Debt?

    Generally speaking, a “good” debt benefits your business in one or more of the following ways:

    • Can potentially increase the net worth of your business
    • Can potentially increase your net worth
    • Has future value

    Additionally, some signs a funding solution might be good include:

    • Low-interest rates
    • Minimal start-up costs and origination fees
    • No annual fees
    • Manageable installments
    • Payoffs that can be made quickly

    Furthermore, taking on good debt can boost your credit score as long as you keep up with your payments. That means you’ll have access to more loan options and better rates as you continue to strengthen your score, so your business saves money on big purchases like real estate and equipment.

    What is Bad Debt?

    A “bad” debt, on the other hand, has the potential to damage your business in the long run. This includes debts:

    • For items that are consumed or depreciate
    • That don’t add to your or the company’s net worth
    • That could potentially leave you with nothing to show for your payments

    Additionally, some warning signs of bad debt loans include:

    • High-interest rates
    • Expensive start-up costs or origination fees
    • Annual fees
    • Unmanageable installments
    • Payoffs that are difficult or impossible to reach

    Examples of Good Debt for Small Businesses

    Based on the definitions, you may already have some idea of what a good business debt looks like. Some examples include:

    • Mortgages that provide you with an asset in the form of real estate
    • Small business loans used to help expand your business or operate more efficiently

    Going by the definitions provided earlier, revolving credit and credit cards could fit into the good or bad debt category as well, but it depends on how you use the cash, the terms of the agreement, and your ability to pay off the debt quickly.

    What to Consider When Making a “Good Debt” Investment

    Before you take on debt you consider to be good, ask yourself the following questions:

    • Is this debt going to help my company grow stronger? Will it add value to my business and/or boost cash flow?
    • Am I paying the least amount possible to borrow?
    • Am I using historic data and realistic projections to determine my ability to pay the loan back?
    • Have I spoken with a tax specialist to determine which options are best to lower my tax burden?
    • If I’m using the cash for something like inventory or supplies that will allow me to accept more business, am I going to earn enough to pay the loan off and still profit?
    • Are the fees and interest for this loan reasonable? If not, do I have a solid exit strategy that will allow me to pay off the debt quickly to avoid excessive fees?

    Examples of Bad Debt for Small Businesses

    Now, let’s look at some bad debt examples your business will probably want to avoid. These include:

    • Credit cards and lines of credit with high-interest rates that won’t get paid off immediately
    • Merchant cash advances (MCAs) with high fees and unpredictable repayment schedules
    • Short-term loans intended to be paid off within 30 to 90 days that come with excessive interest rates and fees

    Avoid Bad Debt: Making Informed Financial Decisions for Small Businesses

    Navigating the financial landscape of small businesses can be challenging, especially when trying to discern the difference between good debt and bad debt. While good debt can help you build wealth, foster growth, and potentially improve your credit score, bad debt can drag down your business, burdening you with high-interest rates that stifle progress.

    Take for example, credit card debt. Credit cards can be valuable tools when used wisely, offering opportunities to manage cash flow and even earn rewards. However, high-interest credit card debt can quickly become a problem, especially if you can’t pay off your balance in full each month. This type of debt is often considered bad debt because of the potentially crippling interest rates associated with it.

    On the other hand, a mortgage or business loan might be seen as good debt. This type of debt, especially when it comes with a lower interest rate, allows businesses to invest in assets that can appreciate over time, like real estate or essential equipment. But even mortgages can shift from good debt to bad debt if the home prices decline or if the loan used is beyond what the business can afford, leading to potential financial struggles.

    Another point of concern is student loan debt. While education is invaluable and can open doors to numerous opportunities, much student loan debt without a strategic repayment plan can hamper one’s financial situation.

    Furthermore, while some consider auto loans and certain types of debt like “good debt” because they enable essential purchases, it’s crucial to keep in mind the repayment terms and interest rates. High-interest loans, for instance, payday loans, are often considered bad debt because of their exorbitant costs and potential to plunge borrowers into a debt spiral.

    Experian, a renowned credit reporting agency, and other financial institutions, such as the Federal Reserve Bank of New York, emphasize the importance of debt management. Their reports and studies highlight the consequences of poor financial decisions and underscore the importance of understanding what’s the difference between debts that can boost net worth and those that detract from it.

    Lastly, for small business owners contemplating taking on more debt, reviewing the annual percentage rate (APR) and evaluating if the debt used to finance specific ventures will have a positive or negative impact in the long run is crucial. After all, the ultimate goal is to leverage debt to foster growth, not hinder it.

    What to Know Before You Take on Bad Debt

    Business owners often know that taking on certain debts can hurt the business. For instance, if the loan comes with high interest and/or fees, and those are disclosed before signing, the long-term implications of accepting the loan are fairly clear.

    The problem is that the solutions that businesses turn to when they’re cash-strapped and need to make payroll or cover inventory don’t generally fall into this category. That’s when people look into “quick money” solutions like revolving credit, MCAs, and short-term loans.  In these cases, the total amount that will be paid isn’t always clear. Sometimes it’s not even known because the amount is dependent on how much the business owner chooses to put toward the debt each month.

    Moreover, because the cash isn’t going toward something that will grow the business, and the underlying issue that caused the cash shortage isn’t addressed, it’s almost a guarantee that the business will run into the same cash flow shortfall later. Only, the next time, it’s responsible for additional debt payments from the first loan too. This is how businesses get caught in a debt spiral, and once you’re in, it’s very difficult to climb back out.

    Businesses dealing with this kind of financial pressure—especially those facing federal tax issues—may benefit from exploring how to finance a business with an IRS lien through invoice factoring, which offers a non-debt alternative to regain control of cash flow.

    How Much Debt is Normal for a Small Business?

    Again, the typical small business presently carries $195,000 in debt. While that might be “normal,” it doesn’t necessarily mean that this level of debt is appropriate for your business. There are three common ways to evaluate business debt.

    Ability to Make Monthly Payments

    Simply put, if making the monthly payments on debt impact the business’s ability to cover other expenses like payroll, the business is carrying too much debt.

    Debt-to-Income Ratio

    Calculating a debt-to-income ratio similar to the one used in consumer markets may also be helpful. To calculate yours, add up all expenses you pay each month and divide the figure by your gross revenue, then multiply by 100 to get a percentage. An ideal rate is 30 percent or less. Anything over 50 percent means the business has an unhealthy level of debt and needs to take immediate corrective action. Businesses that land between 30 and 50 percent should work to reduce their debt.

    Debt Service Coverage Ratio (DSCR)

    DSCR works similarly to debt-to-income ratios.

    The formula is as follows: DSCR = Earnings before interest, tax, depreciation, and amortization (EBITDA)/annual loan payments

    A 1.0 ratio signifies that the borrower is at the breakeven point. They can pay their debt but would be in trouble if their financial situation changed. Anything less than that means the borrower will likely default. Anything higher signifies the borrower can handle the current debt load and may be able to handle more. Banks, for example, sometimes require that businesses maintain a DSCR of 1.25 when applying for a line of credit, Investopedia reports.

    Managing Your Debt: How to Get Your Business Out of Bad Debt

    Knowing the difference between good and bad debt can help you make smarter decisions when your business is short on cash, but what if you’re already in a difficult situation or caught in a debt spiral? The following business debt management tips can help.

    Stop Taking on New Debts

    Immediately stop taking on new debts. Taking out additional loans to cover expenses, even emergency expenses, will make it that much harder to correct the situation.

    Analyze Your Budget and Financial Statements

    You need to have a firm grasp on your revenue and expenses, as well as overall cash flow. Modern accounting software can take the guesswork out of this and help you identify when you’re likely to have a cash flow shortage so you can take steps to avoid it, and when you’ll have additional cash on hand to put toward debts.

    Consider Consolidation

    More than a quarter of small businesses applying for loans are doing so with the hope of refinancing or paying down debt, the latest Small Business Credit Survey finds. If you’re wrestling with high-interest loans, consolidating into a single payment with a lower interest rate is usually a good option, provided you qualify. You can also refinance a high-interest loan to reduce your payments and interest. Either way, be sure to crunch the numbers in advance, as you’ll generally pay fees to obtain the loan, and those can sometimes mean you’ll pay more to pay off the new loan than you might have if you’d just paid down your debts faster.

    Triage Your Debts

    Review all your current debts and find out what you’re paying for each one every month as well as what your interest rates and any recurring fees for each account entail. Generally speaking, it’s best to pay off loans with the highest interest/ greatest cost to borrow first. With this in mind, you’ll want to funnel every penny you can into your most expensive loan first until it’s paid off, then move to the next most expensive loan.

    However, it can be disheartening to chip away at debt every month and not feel like you’re making progress. If you feel like the above approach is going to cause you to lose momentum, pay off your smallest balance first instead. When it’s paid off, funnel the money you would have put toward it to the next smallest balance. With this approach, the amount of extra money you’re putting toward a debt each month snowballs, so you can see the progress a little more clearly. You’ll likely pay more over the lifetime of the loans to use this approach, but if it keeps you motivated to pay off your debt, it’s a worthwhile expense.

    Renegotiate Your Terms

    Sometimes creditors are willing to renegotiate their terms. You don’t need to wait until you’ve missed a payment to ask. Just start calling creditors and tell them your business is experiencing hardship and needs to make changes. Some will offer to wait for payments or reduce payments. That can be helpful if you’re struggling to pay each month or they’re low-cost, and you want to put extra cash toward high-cost loans. However, it will increase the total amount you pay to borrow and increase the time it takes to pay off the loan.

    The better outcome is to see if creditors are willing to lower your interest rate or skip charging interest for a period. Provided it won’t impact your credit rating, you can also ask about debt forgiveness and whether the company is willing to forgive a portion of your debt if you can pay off the remainder in one lump sum.

    Every company will pitch different solutions, so stick with it and see what you can accomplish that will help you get your debt paid off quickly.

    Get Debt-Free Small Business Funding

    Debt-free funding is helpful whether you’re already overwhelmed by debt or are trying to make smart financial decisions to ensure your business doesn’t wind up with too much bad debt. Invoice factoring is one example of this. Rather than taking out a loan, your business simply accelerates payment on its B2B invoices by selling them to a factor at a discount. You get cash upfront to cover expenses and grow while the factoring company waits on payment. The balance is cleared as soon as your client pays the factor, so there’s no debt to pay back.

    If it sounds like factoring is your ideal solution to avoiding bad debts or getting yours paid off quickly, get a complimentary rate quote from Charter Capital.

  • How Referral Partnerships Can Help Your Business Thrive

    How Referral Partnerships Can Help Your Business Thrive

    How Referral Partnerships Can Help Your Business Grow

    Marketing and sales teams have an uphill battle. The average person now sees up to 10,000 ads each day, per Zippia research. It’s hard to cut through all that noise. Plus, a typical sales cycle takes anywhere from six to 12 months, according to Anyleads. Because of this, a typical sales rep makes around 45 calls each day trying to nudge prospects toward the finish line, HubSpot reports. But, there is a way to reduce or eliminate these challenges: referral partnerships.

    What Are Referral Partnerships?

    A referral partner is someone who recommends your business to others, usually in exchange for some type of compensation. Businesses that want to maximize the value of the partnership landscape will create a formal referral partnership strategy.

    Referral Program vs. Referral Partner Program: What’s the Difference?

    Many businesses have a referral program for their clients. In these situations, the client is asked to recommend the business to friends and family. They’ll often receive discounts, free gifts, and other perks for participating or for each referral they provide.

    Referral partner programs aren’t dissimilar in concept. However, the people making the referrals are not clients and don’t use products or services provided by the company, so most programs provide monetary compensation for each referral.

    Referral Program vs. Referral Partner Program: Which is Better?

    Both referral programs and referral partner programs can deliver serious ROI and help your business grow. Therefore, it’s ideal to incorporate both into your business and marketing strategies.

    Referral Partner vs. Affiliate: What’s the Difference?

    Affiliate programs are a form of digital marketing in which a third party, known as an affiliate, promotes a product or service for a business and provides a link for website visitors to click on. Compensation structures vary. Some businesses pay a commission for each site visitor that comes from the affiliate, while others don’t pay out unless the visitor signs up or purchases something.

    Affiliates don’t generally have a relationship with the person they’re sending to the business or the business. Instead, they usually create content about something related to the business or product and include their affiliate link in the text.

    Referral partners have relationships with both the business and the person they’re referring, exponentially increasing the value of the referral.

    Referral Partner vs Affiliate: Which is Better?

    Both referral partner and affiliate programs can benefit a business. However, affiliate programs are more effective for brands that sell tangible products than those that offer service delivery. Affiliate programs are also geared more toward one-off interactions, whereas referral partner programs are long-term engagements with deep ties. Therefore, referral partner programs are better for building a brand and growing a company overall.

    Benefits of Referral Partnerships

    Good referral partner programs offer benefits to both the business and the referral partner.

    Benefits for the Business Receiving Referrals

    Referral partner programs provide benefits at every stage of the buyer’s journey, so businesses that leverage them grow stronger and more quickly.

    Brand Building

    Word-of-mouth marketing has a positive impact and is up to 100 times more valuable than paid media, according to HubSpot research. Roughly half the population agrees that interactions with people like friends and family are their top source of brand awareness. Plus, 84 percent trust recommendations from friends and family more than anything else, per Nielsen. In other words, businesses that want to create awareness for their brand, products, or services will have more success with referral programs than with anything else.

    More Leads

    Businesses get what they put into their referral partnerships. Those that work with their referral partners and nurture the relationships will see the number of sales leads they receive climb exponentially.

    Increased and Faster Conversions

    People are more likely to make a purchase when they are referred by a friend, Nielsen reports. Because referral partners have a relationship with both the business and the person being referred, they’re also more likely to refer people who are good candidates for the products and services being offered. This means the lead is more likely to convert and will convert faster.

    Stronger Client Loyalty

    Referred clients are 18 percent more likely to stay with the brand, according to HubSpot.

    Greater Client Spend

    Just a one percent increase in retention can deliver a 20 percent increase in annual revenue, per HubSpot research. The lifetime value of individual clients skyrockets too, with referred clients generating 16 percent more revenue than their counterparts.

    Improved Profitability and Accelerated Growth

    All these things mean brands with referral partner programs are far more likely to grow faster and be more profitable than their counterparts.

    Benefits for the Referral Partner

    Referral partners also benefit greatly from participating in referral partner programs.

    Compensation

    The commission varies by business and program. However, it’s quite common for referral partners to receive several hundred dollars per referral as a flat payment or receive a percentage of the revenue generated by their referral as compensation. An active referral partner can easily earn thousands with a single company.

    Stronger Client Relationships

    Referral partners often have clients of their own who come to them and ask for recommendations. It’s a huge relief for them to be matched with a trustworthy business. It saves the client time too. Plus, once the client is onboarded with the company and has a good experience, that reflects on the person who referred them. It’s advantageous to participate in multiple referral partner programs so that you always have a trusted business you can refer clients to for any given situation.

    Reciprocal Referrals

    Oftentimes, businesses that provide referral partner programs are happy to refer clients to you as well, so your business grows too.

    How to Participate in Referral Partner Programs

    Now that we’ve covered what referral partnerships are, how programs work, and what some of the benefits are, let’s explore how to get involved with companies as a referral partner.

    Find Referral Partner Programs You Want to Join

    Because you should only partner with businesses you trust, and you’ll need to know about the products and additional services to effectively promote them, it’s generally better to connect with businesses you already have some tie to. Consider reaching out to some or all of the following:

    • Businesses that refer to you
    • Businesses/ vendors you work with
    • Businesses your clients already work with
    • Businesses of friends and associates

    Learn About the Business and Program

    Find out what criteria the business looks for in a good prospect or which clients they can help and why. This makes it easier for you to refer selectively and make mutually beneficial introductions.

    Also, ask about program details, such as how and when you’ll be compensated for referrals too.

    Share Details with Authenticity

    Referral partner programs are powerful because they’re built on relationships and trust. Therefore, you must recommend the business in a way that feels natural to you.

    Touch Base with the Business and Your Referral After

    Find out how the experience went for your referral and share the feedback with the business, so they can duplicate successes and take steps to improve as needed. Also, follow up to ensure you’re being compensated per the terms of your terms of the partnership agreement.

    How to Create Your Own Referral Partner Program

    Be strategic when you create a referral partner program to ensure you’re maximizing the value of each partnership and develop a program that produces ROI and boosts overall business success. The steps below will help as you plan yours out.

    Determine How Your Program Works

    Start by drafting some ideas on how you want your program to work.

    Who

    Strategic partnerships are key. Identify who might make a good referral partner. Businesses that share your audience are a good start, as are vendors and businesses you recommend to your own clients. You may find potential partners through trade or industry organizations and at industry events as well. Sometimes businesses even onboard competitors as referral partners. The arrangement can work if they sometimes get leads that they can’t help, but you can.

    What

    Identify the specifics of what your referral partners should do and how you plan to compensate them. It may be helpful to reverse-engineer your compensation structure to ensure you’re turning a profit after compensation is awarded. To do this, determine how much revenue a client generates for your business over their entire time with you, then subtract any sales and retention expenses.

    Where

    Consider what type of geographic region you want to target with your referral partner program.

    When

    Define any times involved, including the start date for your program and when you plan to reevaluate how it’s working.

    It’s also a good idea to determine the period after a referral is made in which the partner will receive credit. For instance, should the partner only receive credit if the person signs up within 90 days of the referral? Or, would it be better to set a 30-day timeframe in which the referral must start the sales process, but not necessarily close? Or, are you going to give the referral partner credit even if the person doesn’t contact you for years? The average length of your sales cycle and the average number of leads your business generates will come into play with these decisions.

    Why

    Outline why referral partners should want to work with your business. Consider benefits beyond compensation.

    How

    Work out the logistics of your program based on the remaining steps below.

    Create the Technical Processes and Assets

    Get processes and assets in place before you launch or promote your program to ensure everything goes smoothly. You’ll learn more about these components as we move forward, but some things you should consider setting up in advance include:

    • Marketing assets to use with referral partners (website landing page, program signup form, prospect emails, etc.)
    • Partner onboarding assets (demos, partnership agreement, etc.)
    • Marketing assets referral partners can use to promote you (flyers, brochures, social media posts, emails, landing pages, etc.)
    • Tracking (how you’ll track leads generated and the success of individual referral partners as well as the program, as well as commission payments.)
    • Marketing automation workflows (email list segments, nurturing messages, onboarding follow-ups, etc.)

    Train Your Team

    Once everything is set up and you’re ready to start creating referral partnerships, train your team on how the process works and the benefits for both parties. Once they get a feel for how it works, they can start nominating potential referral partners too.

    Find Potential Referral Partners

    Start finding specific candidates based on the methods and groups you chose to target earlier. Compile them into an email list and treat them just as you would a sales lead. Begin with an introduction, nurture them, and give them information about why they should become a referral partner.

    When someone expresses interest, book a meeting to go over program details in depth and provide them with a brief product demonstration, if applicable. Take time to answer all their questions. Remember, this person is going to serve as an ambassador for your brand, so they should be knowledgeable and excited to participate.

    Make Partnerships Official

    When your prospect is ready to start referring, make the referral partnership official by signing an agreement that outlines the obligations and expectations of both parties.

    Equip Referral Partners for Success

    Provide your new referral partner with an onboarding kit that includes all the marketing assets they need. This ensures your branding stays consistent, makes it easier for them to promote you, and can aid in tracking referrals. Some assets you may want to provide include:

    • Unique links they can share that allow you to link their referrals to them.
    • A landing page they can send referrals to and/or a form they can use to provide you with contact details of their referrals.
    • Emails they can send to their clients.
    • Social media graphics and copy they can use to promote you.
    • Flyers or brochures they can give out.

    Track Individual Referrals and Thank Referral Partners

    If you’re using marketing and analytics software and have a CRM, the entire tracking process can be automated. If not, find a way to document and track referrals, so you can tell how referral partners are performing as well as gauge the success and ROI of your program as a whole.

    Because referral partnerships are relationship-based, it’s also a good idea to touch base with partners as their referral goes through the sales process. Pick up the phone and thank them when a referral connects with your company. Let them know when the sale closes and when to expect their commission as well.

    Don’t leave referral partners in the dark if a lead goes cold or stops progressing. Explain what happened and, if the lead wasn’t a good fit, let them know why. Even if things went south, communicate with gratitude to keep the relationship strong.

    Continue Nurturing Your Relationships

    Just as it’s important to nurture the relationships you build with your clients, it’s important to nurture relationships with your referral partners too. If possible, send them regular reports demonstrating their contributions and commissions earned. Send emails to keep them in the loop about things happening with your company or any special offers you’re giving new clients now that they can use to entice prospects to contact you. Share success stories from other referral partners to keep the excitement and momentum going or tips that can help them maximize their commission.

    While you don’t want to overwhelm them, most referral partners will welcome an email like this once or twice per month. Monitor your email engagement rates to determine what your partners respond to most and to determine the ideal cadence.

    Marketing Strategies to Promote and Scale Your Referral Partner Program

    Building a solid referral partner program is only the beginning. To create a successful referral partner program that drives business growth, you need a marketing strategy designed to attract the right partners and scale results over time. Begin by identifying your value proposition — why your products or services are worth recommending to potential customers. Then, communicate that clearly across all channels where your potential clients and referral partners spend time.

    Leverage your existing networks, including existing customers, vendors, and industry peers who already trust your brand. Highlight how the referral partnership program works, who it’s a fit for, and the potential to earn a commission through a referral fee. Showcase success stories to establish credibility and signal a mutually beneficial relationship.

    Use digital tools like email campaigns, social posts, and landing pages with referral links to invite qualified partners. Consider joint marketing with your most engaged referral partners — co-branded webinars or case studies can generate higher conversion and build relationships with referral partners. A well-promoted referral program becomes a cost-effective marketing strategy compared to traditional methods, delivering qualified leads through strong referrals from trusted voices. With the right approach, it can be a game-changer for your business.

    Refer and Earn with Charter Capital

    Do you know business owners or decision-makers who can benefit from fast and reliable funding? We welcome the opportunity to meet them and appreciate your referrals.

    As a Charter Capital referral partner, you’ll automatically receive monthly commission payments for a portion of the revenue generated from your qualifying referrals along with a monthly earnings report. Apply to become a Charter Capital referral partner to learn more or get started.

  • 9 Tips for Funding and Managing Vendor Payments

    9 Tips for Funding and Managing Vendor Payments

    9 Tips for Funding and Managing Vendor Payments

    As your business growth opportunities rise, managing vendor payments can often become a time-consuming and complicated task. This puts unnecessary strain on you, your business, and on supplier relationships, but it’s easier to fix than you might think.

    On this page, we’ll explore what can go wrong in the vendor payment process, plus explore some best practices in vendor management that you can start applying right away to make life easier for everyone.

    Common Vendor Payment Issues

    When vendor payment management is lacking, you’ll start to notice some or all the signs below.

    Late Payments

    Nearly three-quarters of procurement professionals say late payments strain business relationships per PYMNTS surveys. Yet, more than 40 percent of businesses report having a late payment fee in the past year, other PYMNTS surveys show. This is one of the more obvious signs your vendor payment management strategy is lacking, but it’s often dismissed as a one-time oversight and goes unaddressed.

    A Lack of Visibility into Supplier Spending

    It’s often difficult to keep track of expenses in today’s subscription-based society. At home, you might sign up for three different streaming services, then forget you have them. The same thing happens at work, but it’s amplified. It’s not just you setting up auto-charges. It’s multiple people across multiple cards. Sometimes businesses pay for multiple subscriptions to the same service or place the same order twice just because there’s no visibility or bird’s-eye view of what’s happening.

    Manual Invoice Approval Processes

    Many businesses don’t see manual approval processes as being a vendor payment issue. However, it’s one of the top reasons businesses report late vendor payments, according to PYMNTS. Between the lack of efficiency and entry errors, manual approval processes can cause many vendor-related issues.

    Security Issues

    It can take a considerable amount of time to recover after a security breach, and you may not be able to pay suppliers in the interim. You may have security issues if you’re:

    • Mailing payments
    • Making payments through unencrypted portals
    • Failing to take steps to protect cards and account numbers

    9 Tips to Improve Your Vendor Payment Process

    When you manage vendor payments effectively, you’ll keep more money in your business, have better cash flow, and have better relationships with your suppliers. Apply these nine tips and start improving your vendor payment strategy right away.

    1. Automate Your Invoice Processes with Vendor Payment Software

    Accounts payable (AP) automation addresses some of the most common vendor payment issues. It helps ensure you don’t lose track of payables, boosts efficiency, and can help you save money in the long run.

    2. Track All Your Due Payments

    You should have a good idea of what’s coming due even before you receive an invoice. Good accounting software will allow you to add purchase orders to the system and help you predict what needs to be paid and when it needs to be paid.

    3. Prioritize Paying Your Vendors Early

    Paying on time is crucial to maintaining strong vendor relationships. Because these relationships can determine everything from who receives supplies in a crunch to pricing, timely payments are essential for the health of your business too.

    With that said, sometimes vendors incentivize early payments. Try to get payments out within the specified window to not only delight your vendors with rapid payments but also to keep more money in your pocket.

    4. Centralize Your Invoice Payments with a Vendor Payment System

    Sometimes AP software is fairly basic and only allows you to track what’s due and what’s been paid based on invoices you’ve received. That’s not nearly enough if you have multiple team members with credit cards or different departments paying their own bills with no general oversight. That’s how companies wind up hemorrhaging money by having duplicate subscriptions and subscriptions to tools nobody uses anymore. Ensure there’s enough transparency so that you can see what each credit card transaction is.

    5. Set and Implement a Clear Vendor Management Policy

    A strong vendor management policy helps your business minimize risk, ensure continuity, and maintain better relationships with your suppliers. As a start, your vendor management policy should include:

    • How your business sources vendors
    • Policies for contract negotiations
    • How vendors are onboarded
    • Policies for setting service-level agreements (SLAs) and penalties for failure to meet them
    • Vendor risk management procedures
    • Payment policies

    6. Ensure Invoice Accuracy 

    American businesses lose an average of $300,000 per year due to fraudulent invoices, according to Medius research. Moreover, around a quarter of finance professionals can’t estimate the cost of invoice fraud to their business. Each invoice you have should be matched up to a purchase order prior to payment. That way, you catch any legitimate fraud and don’t wind up paying for genuine errors or unintentional duplicate bills either.

    7. Accept Accountability Where Necessary

    If you’re not making timely payments or are having other vendor payment issues, it’s important to own up to your mistakes and let the vendor know you’re taking steps to correct the problems. You don’t necessarily need to tell them what happened or why—sharing too much financial info increases your risk—but at least letting them know you take the matter seriously can help maintain the relationship despite issues.

    8. Conduct Regular Audits

    Audits are typically performed on an annual basis by a third party who looks at your:

    • Balance Sheet
    • Purchase Orders
    • Check Register
    • Supplier Invoices
    • General Ledger

    The goal is to confirm the completeness, accuracy, and validity of your records. If you’re not ready to bring in an external auditor just yet, perform your own and ensure everything matches up.

    9. Make Sure You Always Have Capital for Vendor Payments

    Sometimes, businesses make cash flow mistakes or simply experience a period of rapid growth that leaves them short on cash. Your vendor payments should still be prioritized. Explore options to increase working capital.

    Get Ahead of Cash Flow Issues with Invoice Factoring

    If you’re unable to make vendor payments on time due to cash flow issues, invoice factoring from Charter Capital can help. We accelerate payment on B2B invoices on an as-needed basis, so your business can maintain strong vendor relationships, avoid late fees, and operate at its best. To learn more or get started, request a complimentary factoring quote.

  • Heavy Equipment Financing: A Beginner’s Guide to Getting Funding

    Heavy Equipment Financing: A Beginner’s Guide to Getting Funding

    Heavy equipment financing

    Need to make a large equipment purchase but not sure where to start or if you’ll even qualify? Heavy equipment financing can help you do just this, but there are many ways to approach it. We’ll walk you through some of the most common solutions and alternatives on this page so that you can make the right decision for your business.

    Leasing vs Financing for Heavy Equipment

    When you finance your heavy equipment, you own it. It’s yours until you decide you’re done with it. When you lease heavy equipment, it’s not yours. You’re borrowing it for the duration of your lease, though some leases offer the option to buy when the term is over.

    There are two main types of equipment leasing: capital and operating.

    • Capital Lease: Intended for long-term access to equipment.
    • Operating Lease: Intended for short-term access to equipment.

    Is Financing or Leasing Business Equipment Better?

    Financing is usually better if your company’s cash flow is strong, you plan to keep the equipment for an extended period, and the equipment will help you generate revenue.

    Leasing is generally better if you won’t need the equipment long or it will become obsolete quickly. It can be better if you’re short on cash or are not a strong borrower yet too, though there are alternative funding methods we’ll cover at the end that can help if these latter concerns are holding you back.

    What You Need to Qualify for Heavy Equipment Financing

    Finding traditional equipment funding for a small business isn’t always easy. Borrowers usually need to meet specific criteria for credit scores, cash flow, and time in business. Collateral may come into play as well.

    Time in Business Requirements

    Companies usually need to be in business for at least one year to qualify for traditional equipment funding.

    Credit Score Requirements

    Most financial institutions offering heavy equipment financing require a minimum credit score of 600, though some start at around 550.

    Cash Flow Requirements

    Most businesses will need $100,000 in annual revenue to qualify for an equipment loan, though some lenders start at around $50,000. The amount will vary depending on the total amount of funds requested too.

    Down Payment Requirements

    Most equipment loans require the borrower to put down 20 percent of the initial cost. For example, if you’re purchasing a $100,000 truck, you’ll need to have $20,000 for your down payment. Well-qualified borrowers can sometimes receive a bit more.

    Do You Need Collateral?

    One of the primary things that distinguish heavy equipment loans from traditional loans is that equipment loans usually leverage the equipment being purchased as collateral. It secures the loan and offers the lender a measure of assurance that they’ll be able to recoup their money if the borrower doesn’t pay. Sometimes lenders will have borrowers sign a personal guarantee and leverage other business or personal assets as collateral as well. It’s usually easier to qualify for an equipment loan than it is to qualify for a traditional non-specific business loan for these reasons.

    Can You Get Heavy Equipment Financing if You Have Bad Credit?

    Again, the minimum credit score required for an equipment loan is usually 600. This is considered a “fair credit score,” according to Experian. “Poor” credit is a score of 579 or lower. So, although it’s technically possible to get heavy equipment financing with bad credit, it’s unlikely. You also won’t get good terms like you might if you have a score of 740 or more, which is “very good” credit, or 800 or more, which is “exceptional” credit. If you fall into this bracket, you’ll likely want to explore the non-traditional options covered at the end.

    Costs and Terms of Heavy Equipment Financing

    At this point, you should have a good idea of whether you’ll qualify for heavy equipment financing. Let’s go over what you can expect in terms of repayment and costs.

    What Are the Repayment Terms?

    Equipment loans are generally term loans, meaning you’ll repay the principal, interest, and fees in installments over a set period. Anywhere from one to five years is common, depending on the amount borrowed and your qualifications, though some offer up to ten-year repayment terms.

    How Much Can You Finance?

    Heavy equipment loans are designed to finance the total cost of equipment minus your down payment, so some will offer loans well into the millions. It’s similar to how a car loan works. If you’re well-qualified, you can take out a loan that covers all but your down payment for just about any type of car, whether it’s a $5,000 budget car or a $50,000 sports car. Your down payment addresses the immediate depreciation, so if you default on the loan, the loan company can resell the car and recoup any losses.

    It becomes a little trickier when your financing company doesn’t understand the value of what you’re purchasing. For example, you may know your “new car” is worth $50,000 because it’s electric, but if the lender you’re working with only understands gas-fueled cars, it may argue that your vehicle is only worth $40,000 and then lower the amount they’ll finance. It’s usually best to work with a lender who specializes in your industry because of this. For example, if you’re in the transportation industry and want to purchase new trailers, you want to work with a transportation lender who can accurately value your trailers. If you’re in manufacturing, you want to work with someone who understands what’s involved in retooling your machines.

    What is the Interest Rate on Heavy Equipment Loans?

    Anywhere from about five to 30 percent interest is common with equipment loans. Loan fees, such as origination, underwriting, and packaging, will also be applied to the balance.

    How Fast Can You Get Approved and Paid with Heavy Equipment Financing?

    While it’s technically possible to be approved and funded within a matter of days, many loans and lenders have processes that can drag out for weeks or months.

    What Do You Need to Apply?

    In addition to meeting the minimum qualifications as outlined above and being comfortable with the repayment terms, you should be prepared to provide prospective lenders with common business documents, including:

    • An invoice for the equipment.
    • Up to three months of your bank statements to demonstrate adequate cash flow.
    • One to three years of tax statements to prove your revenue.
    • Financial documents like profit and loss statements to show you can repay the loan.
    • Additional documents such as business licenses.

    Alternatives to Heavy Equipment Financing

    If traditional heavy equipment financing doesn’t work for you, one of the alternatives below likely will.

    SBA CDC/504 Loan

    The Small Business Administration (SBA) offers 504 loans through certified development companies (CDCs) or community-based partners that are regulated and certified by the SBA. Qualified businesses can receive up to $5 million. In these cases, the CDC finances up to 40 percent of the loan, and the SBA backs a portion of this. Ten percent comes from the borrower, and the remaining 50 percent comes from a third-party lender like a bank.

    Businesses must have a net worth of less than $15 million and an average net income of less than $5 million over the past two years. Ten and 20-year repayment terms are available. Interest is generally lower than bank rates, though it usually takes five to eight weeks to get funded. It’s also harder to get an SBA loan than it is to get a general equipment loan, as companies are usually required to be in business for at least two years, and the minimum credit score is 680.

    Term Loans

    An equipment loan is a type of term loan, though the broad term encompasses unsecured loans and loans that use other assets as collateral. Rates vary depending on the lender and what you bring to the table but typically range from six to 25 percent plus interest and fees. Some offer variable interest rates too.

    An equipment loan may be easier to qualify for than a general term loan, though the term loan may be more ideal if you intend to use some of the funds on things other than your equipment.

    Business Line of Credit

    A small business line of credit can occasionally work for equipment too. Unlike most of the options here, there isn’t necessarily a definitive end date for payments. Instead, it works like a credit card. If you draw from the account and then pay the money back, the funds become available to draw from again. Lines of credit usually cap out at around $100,000. The APR may be fixed or variable and can range from seven to more than 35 percent.

    Qualifying for a business line of credit is similar to qualifying for a term loan, though lenders often look for additional signs of financial security and/or collateral.

    Invoice Factoring

    Invoice factoring is a completely different way to address heavy equipment financing. Instead of borrowing the money needed for your business equipment, you’ll sell your unpaid B2B invoices to a third party known as a factor or factoring company. The factor provides you with upfront payment for most of the invoice’s value, then collects payment from your customer. When your customer pays, the factor remits any remaining funds owed to your business, minus a nominal factoring fee.

    There’s no debt to pay back because the customer takes care of the balance when they pay their invoice. Therefore, your credit is less of a concern with factoring, too, as the customer is the one who ultimately pays the balance.

    The amount available will vary for this reason as well. Your factor will run a credit check and determine how much the customer can reasonably pay. For example, let’s say you serve large oil companies that are fiscally strong but take months to pay their invoices. You may be able to factor a single invoice that covers your full equipment purchase. On the other hand, maybe you own and operate a trucking company. Your clients are smaller, and each freight bill is only worth a few thousand dollars. You may want to factor several invoices to fund your equipment purchase. A good freight factoring or oil and gas services factoring company will work with you to find the right funding for your needs.

    Get a Heavy Equipment Funding Quote from Charter Capital

    As a leading factoring company with decades of experience, Charter Capital helps businesses in transportation, oil and gas services, manufacturing, and more address their equipment funding needs every day. Our competitive rates, flexible and fast funding, and personalized service make managing heavy equipment purchases easy. To learn more or get started, request a complimentary rate quote.

  • What Is An Invoice Factoring Broker?

    What Is An Invoice Factoring Broker?

    what-is-a-factoring-broker

    What Is An Invoice Factoring Broker?

    An invoice factoring broker, sometimes referred to as a factor broker, is a company or individual that facilitates the sale of a company’s accounts receivable (invoices) to a factoring company. Accounts receivable represent unpaid invoices that a company is owed for goods and services that have been sold. The process of buying these unpaid invoices is called factoring (also known as invoice factoring or accounts receivable factoring), and the companies doing the buying are called factors or factoring companies. Invoice factoring allows businesses the opportunity to borrow against money that they expect to receive on unpaid accounts receivable. Invoice factoring services are a convenient alternative to a traditional bank loan and provide business owners with access to immediate cash flow to cover essential operating expenses such as payroll, inventory, and maintenance.

    Companies choose to sell accounts receivable when they want to take advantage of the hidden cash stored in their unpaid invoices. In order to tap into this cash, the businesses will offer the unpaid accounts receivable for sale at a discount. An invoice factoring client can receive immediate cash for its invoices. This can be helpful for a company that is having financial troubles or is simply looking to eliminate cash shortages. Invoice factoring works especially well for businesses that have receivables for large amounts of money.

    The process by which accounts receivable are sold is fairly straightforward. A factoring broker might sell them to an open group of buyers or might target specific potential buyers. The broker will usually refer the factoring client to a factor for a percentage of the factoring discount fees.

    A factoring broker can sell for factors (factoring businesses) on either a full-time or part-time basis. To become a factoring broker, one might attend a business college that provides courses on the subject.

    Working as a factoring broker might be appealing to someone who enjoys finance, sales, and marketing. Brokering factoring deals work well in any economy, including during times of recession or financial hardship when many businesses are looking for financing help.

    A good broker will also help the client to understand what information is needed before the accounts receivable can be presented for sale. Typically, a prospective client will need to assemble financial information on its company, including accounts receivable reports and customer information. It is usually helpful for some general information on the company to be provided as well.

    If a company is looking for a factoring broker, they will usually try to find someone who is experienced, who has good connections, and who has been successful at finding factoring companies for clients in the past. To determine a factoring broker’s history, clients may ask for references that will verify the broker’s credentials. References from other businesses can also give clients a good idea of an invoice factoring broker’s skill and professionalism.

  • 3 Benefits of Combining Invoice Factoring and PO Financing

    3 Benefits of Combining Invoice Factoring and PO Financing

    Benefits of Combining Factoring and PO Financing
    ‏

    Very few things excite business owners more than receiving large purchase orders. Unfortunately, the joy is often short-lived as reality sets in. How can you accept a large order when your bank account doesn’t have enough to cover supply costs?

    Purchase order (PO) financing and factoring are two common ways businesses unlock working capital in these situations. We’ll explore how each works independently and how the pair can be used together to help growing companies get ahead.

    Purchase Order Financing vs. Factoring: What is the Difference?

    Purchase order financing and factoring are trade finance options, a special type of financing option used to facilitate domestic and international trade. That means four entities will be involved: the seller of goods or services, their supplier, a final buyer or customer, and a third-party financing company.

    Unlike other lending options, these solutions don’t necessarily rely on banks or load you down with long-term debt, so they can be a good resource when you want to grow by fulfilling a larger order but can’t due to the expenses involved.

    Purchase Order Financing

    Also known as purchase order funding, PO funding, or PO financing, purchase order financing is all about getting the cash necessary for supply purchases. It’s like selling POs, the documents given by buyers to sellers authorizing the purchase of products or services.

    There are five main steps involved in purchase order financing.

    1. You receive a purchase order from your customer.
    2. You request an estimate from your supplier and submit it with your application to a PO financing company.
    3. Your PO financing company pays the supplier or provides them with a letter of credit.
    4. Your customer receives their order and their invoice.
    5. Your customer pays the financing company. The financing company collects their portion and then sends you the remaining money owed.

    Purchase order financing companies will each have their own way of doing business. In some cases, your suppliers will receive cash. Other times, letters of credit may be used. This simply means that the financing company will guarantee payment to the supplier.

    Sometimes, a financing company will also circumvent you in the loop, which is somewhat common in manufacturing. In these cases, funders provide cash to suppliers, and the suppliers send the finished product straight to your customer. You’ll still receive a payment in the end, though.

    It’s also worth noting that sometimes finance companies will cover the total cost of your purchase order, and other times they’ll only pay a portion, so you should be prepared to cover at least some of the cost of supplies. PO financing rates vary quite a bit depending on the amount of the PO, terms, and other considerations, but typically fall between two and six percent of the value of the PO each month the balance is outstanding.

    Benefits of Purchase Order Financing

    Often referred to as purchase order factoring, or simply PO financing, this form of financing stands out as a strategic tool for businesses. One of the primary benefits of PO financing is its ability to provide swift capital, especially when compared to traditional financing. Businesses that use purchase order financing can access funds even before an order is approved, ensuring they can fulfill an order without unnecessary delays.

    PO financing works by allowing companies to use their purchase orders as collateral. This flexibility means that even if a business isn’t approved for PO financing initially, they might still have options like invoice factoring to help bridge their financial gaps. The synergy between purchase order financing and invoice factoring offers a comprehensive solution for businesses facing cash flow challenges.

    Moreover, PO financing can provide businesses with the necessary funds to seize growth opportunities, especially when traditional forms of financing might not be accessible. It’s also worth noting that PO financing is typically easier to secure, making it an attractive choice for many enterprises. When PO financing is used in tandem with other financial tools, like invoice factoring, businesses can overcome various financial hurdles.

    Which Criteria Matter Most for Purchase Order Finance Approval?

    When applying for purchase order financing, approval decisions are not solely based on your company’s credit history. Instead, lenders primarily evaluate whether the customer order and supplier arrangement present a low-risk, high-credibility transaction. A viable funding solution begins with establishing a financially reliable buyer relationship. Customers with demonstrated histories of timely invoice payments and consistent ordering patterns significantly increase the likelihood of transaction approval by financing companies.

    Supplier capability represents another critical evaluation criterion. Suppliers must demonstrate the ability to deliver goods accurately and according to established schedules. Purchase order financing frequently involves lenders making direct payments to suppliers for material procurement, making delivery delays or fulfillment issues potential threats to repayment security. Documentation serves as a fundamental component in this evaluation process. Financing providers conduct thorough reviews of purchase orders, supplier quotations, and total invoice amounts to establish appropriate funding terms and financing line structures.

    Profit margin requirements significantly influence eligibility determinations. Most financing providers establish minimum margin thresholds—typically approximately 15 percent—to offset financing costs and provide protection against potential repayment shortfalls. When profit margins fall below these established thresholds, financing companies may impose limitations on total financing amounts or decline applications entirely.

    Unlike traditional lending products, purchase order financing focuses specifically on individual transaction viability. Businesses receiving substantial volumes of purchase orders or operating under extended payment terms frequently utilize purchase order financing or factoring services to fulfill customer orders without assuming long-term debt obligations. In certain arrangements, financing companies deduct their fees directly from invoice payments, particularly when services are combined with third-party factoring solutions.

    Invoice Factoring

    Also known as accounts receivable factoring or accounts receivables financing, invoice factoring is all about accelerating payment after goods are delivered. Think of it as selling your outstanding invoices to a third party at a slight discount.

    There are four main steps involved in invoice factoring.

    1. You receive a purchase order from a customer, deliver goods, and send an invoice.
    2. You provide your factoring company with a copy of the unpaid invoice.
    3. The factoring company gives you upfront cash, sometimes even on the same day. You’ll typically receive somewhere between 60 and 80 percent of the value of the invoice to start, though some companies will advance as much as 100 percent under certain circumstances.
    4. Your customer pays the factoring company. The factoring company then sends you any remaining cash due, minus a nominal factoring fee.

    There are both recourse and non-recourse factors, meaning sometimes you’ll be responsible for paying back the factoring company if your customer doesn’t pay, and other times the factoring company accepts responsibility for non-paying clients. In any case, non-payment is rare because factors typically perform credit checks on your customers before accepting invoices and will let you know how creditworthy each client is.

    Factoring fees will vary based on several considerations, such as the number of transactions you do with your factoring company, the value of the invoice, and invoicing terms, but will usually land somewhere between one and five percent of an invoice’s value.

    Benefits of Invoice Factoring

    Invoice factoring offers several advantages to businesses. By selling unpaid invoices to a factoring company, businesses can quickly receive payments, improving their cash flow. This method is beneficial for businesses of all sizes facing cash flow challenges or seeking funds for expansion. Notably, invoice factoring is available even to those with imperfect credit histories. Unlike traditional bank loans, it doesn’t require collateral or personal guarantees, making it a preferable option. It provides immediate cash without adding debt, and the factoring company handles invoice collection, saving businesses time and effort. Overall, invoice factoring is a strategic choice for maintaining steady cash flow and improving working capital.

    Factoring Qualification Requirements

    Qualifying for PO financing and factoring is more about the strength of your customers and suppliers than your personal or business credit. That’s because the inventory or invoices are considered assets, which serve as collateral for you, and any debt involved is expected to be paid by your customer.

    With that in mind, your supplier and customer should:

    • Be creditworthy.
    • Be a viable business customer or government entity.
    • Have a profit margin of at least 15 percent.

    One of the benefits of invoice factoring, especially for small businesses or business owners with bad credit, is that neither your personal credit score nor that of your customers is taken into consideration when a factor in determining whether you qualify. Because the invoice factoring company provides you with an upfront cash flow and collects on the unpaid invoices, they are more concerned with your clients’ credit histories than yours.

    Companies That Use Purchase Order Financing and Invoice Factoring

    • Distributors
    • Wholesalers
    • Resellers
    • Importers and Exporters of Finished Goods
    • Outsourced Manufacturers/ Manufacturing Facilities

    Sometimes, even non-traditional businesses find ways to fuse these solutions effectively, adapting them to meet unique operational needs. For instance, a staffing agency might leverage staffing factoring to maintain steady cash flow by converting unpaid invoices into immediate funds to cover payroll expenses. At the same time, the agency could explore purchase order financing to manage costs associated with a large, time-sensitive staffing project, such as upfront training or onboarding expenses for a sizable temporary workforce. By combining both solutions, the company can ensure financial stability while scaling its operations to meet client demands.

    Qualification Requirements

    Qualifying for PO financing and factoring is more about the strength of your customers and suppliers than your personal or business credit. That’s because the inventory or invoices are considered assets, which serve as collateral for you, and any debt involved is expected to be paid by your customer.

    With that in mind, your supplier and customer should:

    • Be creditworthy.
    • Be a viable business customer or government entity.
    • Have a profit margin of at least 15 percent.

    One of the benefits of invoice factoring, especially for small businesses or business owners with bad credit, is that neither your personal credit score nor that of your customers is taken into consideration when a factor in determining whether you qualify. Because the invoice factoring company provides you with an upfront cash flow and collects on the unpaid invoices, they are more concerned with your client’s credit histories than yours.

    Combining Factoring with PO Financing

    PO financing and factoring can each help your business thrive in its own right, but pairing them together has unique benefits.

    There are seven main steps involved when you pair PO financing with factoring.

    1. Your customer sends you a purchase order.
    2. You connect with your supplier and get an estimate for the cost of goods to fulfill the order, then give the estimate to your PO financing company.
    3. The PO financing company pays the supplier, and the supplier sends you raw goods.
    4. You fulfill your customer’s order and send them an invoice.
    5. You provide your factoring company with a copy of the invoice.
    6. The factoring company pays your PO financing company and may send you upfront cash, too.
    7. When your customer pays the invoice factoring company, the factor pays you any remaining cash, minus a small factoring fee.

    By going this route, your company accelerates cash flow and can pay less in interest fees to PO financing companies, too.

    How Can Factoring and PO Financing Help Your Business Grow?

    Now that you know the basics of factoring and PO financing and the process of using them together, let’s take a look at some of the key benefits of this strategy.

    1. You Can Take on Larger Orders

    If you can’t afford to take on an order or want to be able to accept larger orders than you can now, factoring and PO financing are paths that can help you level up.

    2. Funding is Easier to Get Than a Traditional Bank Loan

    Traditional bank loans have all kinds of criteria that businesses need to meet to qualify for financing. Because of this, most small businesses don’t get the level of funding they need through traditional business loans. PO financing and factoring don’t work the same way. Again, it’s more about having strong customers and suppliers, and most businesses will usually qualify if they have them.

    3. Deployment is Fast

    It can take weeks or months to close on a traditional bank loan. If you’re relying on one to fulfill an order, there’s a good chance your customer won’t be willing to wait, and you’ll lose out on the business. Because trade credit is specialized funding designed specifically for these types of situations, funding is incredibly fast and sometimes happens on the day you submit documentation to your PO funding or factoring company.

    Solving Cash Flow Gaps: When to Use PO Financing vs. Invoice Factoring

    Businesses often encounter cash flow gaps at two key stages—before fulfilling an order and after delivering the product or service. Purchase order (PO) financing and invoice factoring address these gaps differently based on when the cash is needed.

    Before Fulfillment: Use PO Financing

    When a business receives a large purchase order but lacks the funds to buy materials or pay suppliers, PO financing bridges that upfront gap. It’s especially useful for:

    • Manufacturers and wholesalers with growing order volumes
    • Companies working with overseas suppliers that require upfront payment
    • Businesses facing long lead times between order and delivery

    With PO financing, the funding company pays suppliers directly so production can begin without draining internal cash reserves.

    After Invoicing: Use Invoice Factoring

    Once the order is fulfilled and the invoice is sent, the next gap begins—waiting 30, 60, or even 90 days for payment. This is where invoice factoring comes in. It allows businesses to:

    • Convert receivables into immediate working capital
    • Fund payroll, inventory restocks, or operating expenses
    • Maintain steady cash flow without taking on new debt

    By using both services at different points in the sales cycle, businesses can maintain momentum from order to payment without disruption.

    Take Your Business to the Next Level with PO Financing and Factoring

    If you’re ready to scale your business with factoring, Charter Capital can help. It doesn’t cost a thing to become established and find out your rate, so you can get set up now and be ready to take action the next time a large order heads your way. Request a complimentary rate quote now.