It’s a known fact that companies that obtain bankruptcy financing have a much higher chance of emerging out of chapter 11 as a viable company than those that don’t secure debtor in possession financing. However, obtaining DIP financing has always been a challenge. There is the obvious reason that insolvent companies can be risky investments for commercial finance companies, so not many companies offer the product. And for the most part, DIP financing has only been offered by banks and corporate finance companies to large companies. Because of this, many small and medium sized companies were never able to secure financing and went out of business.

Recently, the trend has been reversing and a growing number of finance companies have begun offering specialized forms of bankruptcy financing to small and medium sized companies. Although still not widely available, a number of small businesses have been able to secure DIP financing and emerge from bankruptcy.

One of the biggest challenges that bankrupt companies have is that they lose control of all their bank accounts as soon as they declare for bankruptcy. Most assets up to the point of filing for bankruptcy have to be used to satisfy past debts. If your customers take 30 to 60 days to pay their invoices, that means that you may have to go without much liquidity for a number of weeks, unable to pay employees or buy new supplies. Factoring financing is a form of DIP financing that can help in these situations. Factoring accounts receivable provides you with an immediate advance on your slow paying invoices, supplying the needed funds to pay employees and suppliers. Factoring receivables provides you with the liquidity and breathing room to run your business while you navigate the chapter 11 bankruptcy process.

Qualifying for factoring is relatively easy. The biggest requirement that factoring companies have is that you sell products/services to credit worthy commercial customers who pay in less than 90 days. Factoring works best if your customers pay in 30 to 45 days and if your profit margins are at least 15%, but is flexible enough to work in other situations.

One substantial advantage of accounts receivable factoring is that is readily available to small and midsized companies. Like any form of debtor in possession (DIP) financing it will need to be approved by the court. And, it is best to apply for DIP financing and bankruptcy at the same time since it will give you a better footing on the critical weeks immediately following a bankruptcy.

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Learn about factoring in Montana and invoice factoring in Nebraska

The number one worry for managers and owners of companies undergoing a chapter 11 bankruptcy restructuring is: will my business survive? Of course they do have many other worries such as meeting with creditors, creating a turnaround plan, paying employees on time and working with suppliers. One way to ensure the success of the restructuring and the survival of the company is to obtain bankruptcy financing, also known as debtor in possession financing.

DIP financing can help provide the capital liquidity to pay operational costs while the company looks to turnaround the current situation. The problem is that unfortunately, few institutions offer business financing to bankrupt companies. If getting a business loan under normal circumstances is hard, looking for business loans while going through bankruptcy is close to impossible. So, what alternatives are there for medium sized companies?

Factoring financing, also known as invoice factoring, is a viable alternative for debtor in possession Accounts receivable factoring advances funds on these slow paying invoices, providing the necessary capital to operate the business. financing, especially for small and midsized companies. It solves a very specific problem. Companies that sell to other businesses usually have to wait 30 to 45 days to get paid on their invoices. This can create a serious liquidity problem for companies facing insolvency.

A factoring company will usually advance about 80% of your outstanding accounts receivable within one business day of invoicing. The remainder 20%, less the financing fee is advanced once the invoice is actually paid for. Factoring companies will also help you evaluate new customers to determine if they are credit worthy. And of course, if you decide to factor new customers, you won’t need to worry about waiting 30 to 60 days to get paid either.

Obtaining factoring financing is fairly straight forward. The biggest requirement is that you must do business with credit worthy companies. Aside from that, you must have a reorganization plan that brings your company back to solvency. And lastly, the court will need to approve the financing relationship.

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Information about factoring in Mississippi and invoice factoring in Missouri

Going through a chapter 11 bankruptcy processes can be one of the most harrowing experiences that a business owner can go through.  You will have to deal with the courts’ involvement in your business and deal with endless negotiations with your secured and unsecured creditors. You will also have to deal with the uncertainty of not knowing whether your business will survive the process. One way to help your chances of business survival is to obtain debtor in possession financing.

Debtor in possession financing is a type of financing that is extended to companies that are about to go or are undergoing chapter 11 reorganization. It provides the company with the liquidity that is needed to operate through the reorganization process and provides the lifeline that may help the company emerge from the bankruptcy process. Most conventional debtor in possession financing is hard to obtain and usually not readily available to small and medium sized companies.

For example, few banks will provide business financing to bankrupt companies. This is understandable, as banks usually provide business loans to companies that have solid financials, hardly the case for a company going through a chapter 11 reorganization.  Since a business loan is not an alternative for most debtor in possession companies, are there other alternatives? In fact, there are. There is an option that is usually overlooked by most. It’s called factoring. Furthermore, as opposed to other alternatives, it’s easy to obtain and setup.

If your company sells products or services to other businesses (or government agencies) you most likely have to wait 30 to 60 days to get your invoice paid. Waiting to get paid can negatively impact your liquidity, as you will need the funds to pay suppliers, employees and other business expenses. By factoring your invoices, you can get an advance on your slow paying invoices. This provides you the cash liquidity you need to meet your payment obligations.

Qualifying for accounts receivable factoring tends to be a lot easier than obtaining other types of financing. The biggest requirement is that you do business with reputable commercial or government clients. It also works best if one of your biggest challenges is lack of liquidity due to slow paying clients.

Generally, factoring financing lines can be established very quickly. However, debtor in possession financing requires the approval of the court and of your secured (or senior) lenders, which should be taken into consideration.

In summary, receivables factoring remains a strong a viable alternative that need flexible debtor in possession financing.

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Learn about factoring in Michigan and invoice factoring in Minnesota

Going through a chapter 11 bankruptcy is a harrowing experience for business owners. There is the uncertainty of survival. Facing creditors and vendors. Dealing with the possibility of layoffs. And despite all, one has to press forward and try to save the business.

Getting out of a chapter 11 bankruptcy can be very difficult. More often than not, the only way to succeed is by getting as special type of bankruptcy financing called debtor in possession (DIP) financing. Companies that have debtor in possession financing have a better chance of success than those that don’t. However, qualifying for DIP financing is very hard.

Generally speaking, banks don’t offer business financing to bankrupt companies. This will rule out business loans as an option. However there is a specialized type of financing that under many circumstances works better than a business loan. This alternative is called factoring, and it’s been gaining traction as a DIP financing solution. Factoring is available to companies that sell products and services to other businesses or government agencies.

Let’s look at a common business problem. Most business clients pay their invoices 30 to 45 days after buying a product or service. In the meantime, while you wait to get paid, you still need to pay employees and suppliers. This is challenging under normal circumstances and can be impossible for companies undergoing a chapter 11 bankruptcy. Invoice factoring fixes this problem.

Factoring invoices provides you with an immediate advance upon invoicing. The advance is usually about 80% of the invoice. This provides you the necessary liquidity to meet current expenses. You get the remaining 20%, less a small fee, once the customer pays the invoice. One clear advantage of accounts receivable factoring is that you can start taking new customers without worrying about their payment habits. This can offer the necessary breathing room to let your company work out its solvency problems.

Factoring financing is relatively easy to qualify for.  The biggest requirement is that your company must sell products or services to credit worthy businesses (or government entities) at a profit.

Although not every factoring company offers DIP financing, you will find many factoring companies willing to work with you. As would be expected, the factoring relationship will need to be approved by the court. Also, any secured creditors will have a say in the relationship. However, entering into the factoring relationship should not be too problematic if you can show how your business and its creditors will benefit from it.