Owning and running a small business, there are always chances for you to get scammed by your business partners and customers – especially if your business runs in a region in which small business laws and regulations are not properly enforced. If you were hit by such unfortunate situation, what’s your option, business-wise?
One of those days… you are dealing with a great customer bringing in great revenue for your small business. He orders frequently, and the amount of the orders rise steadily every time; you are ecstatic – finally you can have adequate funds to grow your business – or simply improving your year-end bonus for your employees. You then start giving him a good term, allowing him to order now and pay a month later in an effort to please and retain him.
Everything looks great – until suddenly, this favourite customer of yours is running away with your products and went missing off the radar. You contacted his office, but the line is out of service; you contacted his mobile phone numbers and emailed him – no response. Then you realised – you’ve just got swindled.
In despair, you are contacting your legal adviser and even went to the police to report the scammer. You try everything in your power to pursue the swindler – but you are out of luck; doing so is resource-intensive, and you simply don’t have such resources.
What to do now? Well, this blog post is not on how to legally pursue the scammer – that’s for legal blogs to cover :) While you are looking for legal solutions, I recommend you to focus on your business continuity.
What I’m going to let you know is the options you have in order to maintain your small business operations; there are suppliers to pay and business growth plan to meet. It’s no time for you to drown yourself in sorrow; it’s time to pick up the pieces and move on, looking for a solution.
Fear not – here are some things you can consider in getting your small business on-track:
Getting scammed or not, you need to do whatever it takes to pay your suppliers on time – that’s only the right thing to do! But if your cash flow is tight and you can’t afford to take unsecured loans with high interest rates to pay your suppliers, the first and foremost thing you can do is to call them and explain your situation, asking for a payment term to settle your accounts payable.
Most likely than not, your suppliers will understand, as long as you are proposing a payment plan agreeable by both parties – and stick to it no matter what.
2. Borrow from bank (or friends and family)
Borrowing from bank is only logical; however, there’s one major caveat. Settling your business debts with yet another debt is a bad business practice. Moreover, unless you have personally guarantee a loan, you need to have a form of collateral to back your business loan; bottom line, it’s not a good idea, in my opinion.
Borrowing from your friends and family members? Even a worse solution! You are putting your personal relationship at stake, just to recover from your business financial woes due to the scamming… not a good idea.
3. Invoice factoring
To me, this is probably the best solution for you; invoice factoring lets you sell your accounts receivable (your invoices, for example) to a “factor” (a third party, including a financial institution) at a discount rate. You will receive cash at 70-85 percent of the purchase price of the accounts receivable in one to two weeks time.
It’s a financial product made available by financial institutions and it’s commonly used in some industries, such as textile and apparel businesses. You can learn more about invoice factoring here.
I consider invoice factoring as the right solution as it doesn’t add yet another burden into your financial responsibilities (e.g. paying your loans on time.) Depending on your profit margins, 70-85 percent is more than enough to help you pay your accounts payable and cover operational while recovering from the scam.
As always – do your due diligence in choosing the best option for you; before you decide on anything, be sure to consult with your accountants, business advisors and/or anyone who are capable in giving you professional advices.