A good balance
For companies of any size, it is important to have a good financial position. This is not only an internal matter, but also has an external effect. Not only the company's own financiers, but also suppliers and credit insurers assess the company's balance sheet. Good balance sheet ratios are very important here. This is usually expressed in solvency, or the ratio of equity to total assets.
Reduce balance sheet total
Equity results from shareholder contributions and losses and profits. Not much else can be done about that. However, there is another way to improve solvency and that is by reducing the balance sheet total. This can be done by leasing assets instead of buying them, reducing inventories and practising good credit management which keeps debtors as low as possible.
Debtors off-balance sheet
Another option, which many entrepreneurs do not immediately think of, is to take the debtors off-balance sheet. This can be done by selling them. The most appropriate way to do this is by selling the debtor portfolio to a factoring company. This could be the entire portfolio, or it could be part of it or just one (large) receivable. The factor company takes over the receivable including the risk of non-payment. It is therefore important that these are solvent debtors, preferably credit-insured.
Improved liquidity
The factoring company buys the receivable, immediately pays 90% of the purchase price and is then responsible for collecting the receivables itself. The advantage for the selling entrepreneur is that he has immediate liquidity available with which he can pay his creditors faster or reduce his bank credit. Simultaneously, the balance sheet becomes shorter, improving its financial position and giving it a better rating with its bank and its suppliers' insurers.
Want to know more? Then contact us soon to make it happen before the end of the year.
