1. Financing
2. How do I factor receivables?
3. Collection of a bad check
4. Obtaining an accountant
5. Should I file for bankruptcy?
6. How do I recover my money if a customer declares bankruptcy?
7. Avoid losing money up front
8. How do I acccept credit cards?
9. Can I charge slow-paying customers interest?

There are many ways to obtain financing for a business. These include: personal, bank, credit unions, commercial loans, Small Business Administration (SBA) loans, Small Business Investment Company (SBIC) loans, venture capital markets and selling stock. To determine which option(s) is best for your business, develop a master plan of what your company is, why it was started, where it's going and how it's going to get there. The next step is a marketing plan which outlines how you will gain new sales and new profits through a minimum of one year, and probably extending a couple years into the future. Finally, develop a financial plan that: shows costs, expenses, salaries, debt repayment and overhead; measures against projected gross income; and demonstrates profitability to repayment of the loan and return on investment.

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Q: I had a company approach me about factoring my receivables. Just what is factoring and should I consider doing it?

A: If you have a cash flow crunch or aren't good at collections, factoring may be an alternative -- albeit not a cheap one.

Factoring refers to when a company buys, or rents, your receivables -- at a discount. For example, if you have $5,000 in receivables, the factorer might buy them at a discount of three percent. You receive $4,850 from the factorer, who then awaits payment from your customers. When those accounts are paid, the factorer gets the full amount.

Is you business a good candidate to use factoring? That will depend on how badly you need the cash and what your other alternatives are.

The most important thing for you to understand is just how much factoring may cost you in comparison with dealing with a bank or other lender. Let's say your normal accounts receivable turnover is 45 days. If you sell at a three percent discount, that's the same as borrowing money at an annual interest rate of 24 percent (365 days divided by 45 days multiplied by three percent).

The discount rate goes up with older or harder-to-collect receivables. A factorer may also charge back any amounts not collected, so it is really only lending you money. You may also pay monthly maintenance fees or other administrative charges.

If you consider factoring, be sure you fully understand the contract and what your actual cost will be. It's common for business owners to turn to factoring when they have difficulty getting loans or lines of credit or when they just don't want to deal with collections. Although there are legitimate factoring companies around, there are also some real scoundrels, so be careful!

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Determine if the check came back due to nonsufficient funds (NSF), an account that's been closed or because payment was stopped. If the account was closed or payment stopped, contact the issuer of the check directly. If nonsufficient funds, contact the bank to see if there are funds and if they will cash it. Contact the individual for immediate issuance of amount plus fee if applicable if the bank won't cash the check. If the preceding steps don't work, exercise your legal alternatives which include: filing a complaint with your local district attorney's office bad check division, moving on to small claims court, hiring a collection agency or initiating litigation through your attorney.

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Every business should have an accounting resource as a secondary source of information and for review of numbers. Financial statements and cash-flow projections should be produced on a monthly basis with review by an unbiased accountant quarterly.

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Q: My business has hit bottom and I don't see any way out. I'm $20,000 in debt and afraid of losing my house and what little bit of money I have left. I've been told that bankruptcy can give me a clean start. Should I file?

A: Twenty thousand dollars is probably not worth filing over when you consider that a bankruptcy can follow you for the rest of your life. It may only show up on your credit history for seven or 10 years, but take a look at a credit application. It doesn't ask if you filed bankruptcy in the last 10 years. It asks, "Have you ever filed for protection under bankruptcy?" Obviously, the decision to file depends on your personal situation.

However, in many cases you can resolve the problems with your creditors without going through the courts. Before you take what may seem like the easy way out, try to work out a payment plan with your creditors based on you ability to pay, regardless of how much or how little it is each month. Most creditors know that if you file bankruptcy they will likely get nothing -- but it they work with you they may at least get their money (even if it is over a longer period of time). If you were in debt $200,000 I might be giving different advice, and I don't mean to suggest that bankruptcy shouldn't be considered. But for the sake of $20,000 you might be making a big mistake. There are many accountants, business consultants and attorneys who can help get your creditors to work with you.

Another source to consider for assistance is the Consumer Credit Counseling Service. This nonprofit group is listed in your telephone directory. They might not be able to help your corporation out, but as for your personal debt, they are very highly thought of and creditors listen to them when they go to bat for you.

Caution: Avoid professionals who think the best thing about bankruptcy is how they can fatten their bank accounts with fees from people with financial problems. Bankruptcy is an absolute last resort and not a quick fix to get rid of creditors for the sake of a few thousand dollars.

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Q: One of my customers owes me several hundred dollars and is telling me he filed bankruptcy. Is there anything I can do to get my money?

A: If you haven't received a notice from the Federal Bankruptcy Court, verify the filing by calling the bankruptcy court in the customer's city. If your customer was incorporated, the bankruptcy will be under the corporate name. Sole propretors would file under the owner's name with a DBA in the business name.

Find out if the filing was made under a Chapter 11 (business reorganization), Chapter 13 (personal reorganization) or Chapter 7 (liquidation).

Once a bankruptcy is filed, there isn't a great deal you can do. It takes a few weeks for you to receive notice from the bankruptcy court. Fill out and return the notice so you'll be on record to receive any moneys that may be distributed.

Any other steps you take will depend on how much money is owed and whether you're a secured or unsecured creditor. A secured creditor has collateral pledged (such as when a bank collateralizes a loan with a building). These are the first debts to be paid; in many bankruptcies there isn't anything left over for anyone else.

Most creditors are unsecured, which means they don't have any security pledged against the moneys owed. Although you should do everything you can to get some money out of the bankruptcy, in reality about all you can do is put an imaginary curse on the debtor, and kiss your money goodbye.

If you're owed thousands of dollars or hold a secured position, discuss the situation with an attorney who can advise you if you have any alternatives. However, the chance of getting any money is usually pretty slim. In any case, if you have any questions about the bankruptcy procedures and your rights, talk with your attorney.

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Q: OK, I learned my lesson. How can I avoid losing money to bankrupt clients in the first place?

A: The time to protect yourself is when you make the sale. Have a good credit policy and stick to it. Make sure customers pay as agreed. Remember, the customer who screams the loudest ("I've been doing business with you for years and if you can't give me what I want, then I'll find someone else who will.") is probably the one who will stick you with the biggest loss.

If you deal with corporations, consider asking the owners for a personal guarantee. Then if the corporation can't pay, you can go after the owners. If you deal with high-ticket products, consider making a Uniform Commercial Code filing, which may give you title to the product until you receive full payment.

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Q: How do I get set up to accept credit cards at my business?

A: Generally, you have to have a business location or storefront, and have been in business for a minimum of three years. Although requirements will vary depending on the service provider you deal with, it is difficult -- though not impossible -- for some businesses (such as home-based, mail order and network marketers) to get merchant status.

Your first step is to decide which credit cards you want to accept. The most common choices are MasterCard, VISA, American Express and Discover. In the case of the latter two cards, you can get information on merchant status by calling American Express at 1-800-528-5200 and Discover at 1-800-347-6673. MasterCard and VISA accounts are commonly set up through an area bank (if your business doesn't fall in one of the bank's undesirable categories).

Other than banks, there are third-party processors called Independent Sales Organizations that provide merchant services. A quick look through the Yellow Pages under "Credit Cards" should turn up a number of possible sources.

Remember that credit card services can be competitive. It's always a good idea to shop around to find the best deal. Once you have your search down to a few providers, get copies of their contracts and look them over carefully.

Questions to ask:

• What is the discount rate?
• How much of a reserve will I be required to maintain?
• How quickly will my bank account be credited with credit card deposits?
• How much are the monthly fees? What equipment is required and what are the costs?

If you know other people in business who accept credit cards, pick up the phone and give them a call. How does their service compare to the ones you are considering? Avoid those with high monthly rates, low rates coupled with high up-front fees, or costly equipment leases. If you don't understand everything in the contract, have an attorney look it over for you.

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Q. I'm tired of slow-paying customers and want to start charging interest on late payments. How do I do it, and how much can I charge?

A. There's nothing wrong with charging interest to late-paying customers -- but don't think it will be a miraculous solution for getting paid on time. If you don't have a good credit and collections policy to start with, charging interest will only add to the amount customers owe you.

First, determine the maximum legal rate for your state; your banker should be able to tell you. The most common rate charged for outstanding invoices is 18 percent annually (1.5 percent per month). Some people think if they use an outrageous rate (like five percent per month; 60 percent per annum) customers will have to pay on time. This is illegal (it's called usury) and can put you at the wrong end of a lawsuit! You'll not only have to forgive the original amount owed but probably pay three times the original amount in damages.

Once you establish a rate, you must notify customers that any balances not paid by the due date will be subject to finance charges. This should be done on any bill of sale or contract given to the customer. Note on all invoices that unpaid balances are subject to finance charges.

Because there are specific state laws concerning charging interest or finance charges, it's a good idea to discuss just what you will be doing with your accountant, attorney or both. A few dollars spent up front could save you big dollars later.

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