People are fond of saying “Surgeons will always recommend cutting, and bankruptcy attorneys will always recommend filing!” I don’t think that’s true in either case, but I want to use this space to talk about my own work with small business owners, and how I always try to help them explore all their choices before deciding to file bankruptcy.

In one of my very first blogs I talked about how many people imagine that, when debts pile up for a small business, there’s only one ending to the story – bankruptcy. The problem with that perception is that people have heard so much false information about bankruptcy, they put off facing financial decisions. Often a business owner continues in denial for so long, he or she loses the opportunity to make choices other than bankruptcy!

In “Got Bills? You’ve Got Choices As Well!”, I mentioned some things that can be explored by individuals to avoid bankruptcy or at least to buy time, including taking out a new loan to pay bills, refinancing a home, and enrolling in a consumer credit program. I talked about the some of the advantages and about the drawbacks of each of these tactics.

Sometimes I think small business owners have the biggest challenges of all. The chief one, I’m told, is collecting their accounts receivable. They’ve done the business, but they have to wait, often for months, to collect the money owed. Sending notices and making phone calls is expensive and unpleasant. Meanwhile, the small business must keep up with its own payroll and pay its own suppliers! This can feel like being squeezed in a vise, business owners complain to me all the time. Of course, for most small business owners, their personal finances are tied up in their business as well, so they and their families are suffering, too.

In addition to all the alternatives I discuss with individuals, one strategy I discuss with small business owners is factoring the business’ accounts receivable. Factors are companies that provide cash in exchange for taking over some of or all of the invoices of a business. As with any strategy, there are plusses and minuses for the business owner.

If the business needs cash in a hurry to pay its own bills and buy time to create a longer-term strategy, factoring could solve that issue. If a factor accepts the application, money could be available very quickly. Business owners need to understand that factoring costs much more than a short term bank loan, since the factor is buying the accounts receivable at a big discount from the total amount actually owed by the customers. Also, the factor might pay the business owner only part of that discounted amount up front, with the other part dependent on collecting from the customers paying their bills to the factor. But if a business was turned down for a bank loan or a line of credit, and the main goal is keeping the doors open, factoring may be the only choice.

In fact, factoring may turn out to not be a choice for some small businesses. For instance, the factor may be looking to finance only a minimum dollar amount per month and the business might be too small to interest the factor. Or, the list of accounts receivable may include too many “deadbeat” customers from whom the factor doesn’t think it could collect money.

It’s not my purpose to either promote or knock any one strategy for a small business. The point I want to make is simply that my function as a small business bankruptcy attorney in Indiana is to help people debunk myths and explore options – all options. From there the business owner can select the right strategy or combination of strategies that seems to best fit that situation. Whatever the decision, I’m there to help.