With the continued threat of a double dip recession, many of today’s small businesses have put their plans for growth on hold. Most are hunkering down, tracking the trends within their market and trying to mitigate the effects of delinquent customer payments. It’s an unpleasant outcome of an economy in decline. Customers invariably take longer to pay and the resulting delays do nothing more than increase the company’s cost of money. No small business wants to finance their customer’s operations, but this is the likely outcome when customers exceed terms. However, is there a solution for small businesses unwilling to deal with customers extending their credit? More importantly, when it comes to small business financing, what options do companies have that can offset the effects of a bad economy?

There are two financing vehicles that small businesses can turn to. One is purchase order financing and the other is accounts receivable financing. One allows companies to use their customer’s orders as collateral, while the other empowers companies to use the value within their invoices to secure working capital. Each is a vital financing tool for today’s small businesses. Both allow companies to avoid the hassle of customers delaying payments and extending terms. With purchase order financing, a financing company advances the small business a portion of the purchase order. The amount typically advanced is based on what the materials and labor cost to create a finished good. With accounts receivable factoring, the company advances the small business funds based on the value of their customer’s unpaid invoices. In both cases, once the invoices are paid in full, the financing company reimburses the small business the difference between what was originally advanced and what was finally paid by the customer.

Both options allow small businesses to take charge of their financing. Small businesses can avoid being held hostage by customers unable or unwilling to pay their bills. Instead, they can secure the business credit to finance current needs, or to finally enact their plans for growth. While both of these financing vehicles have been around for thousands of years, it is fair to say that they’ve both been revived due to the recent Great Recession.