That’s the principle behind invoice factoring for small businesses, a trend that’s on the upswing.

Small business is the heart and soul of our economy. More than 99% of U.S. employers — 25.8 million — are small businesses.

With today’s economy, payments are running later than ever. This can greatly harm a company’s ability to take on new customers, and even to secure the most competitive rates from its own suppliers. It also makes it more difficult for these businesses to pay their suppliers on time.

Accounts receivable factoring attempts to build a bridge over this gap for small business financing. The factoring firm provides what is essentially a short-term loan.

When the company’s billing period ends, it re-pays the factor.

There are three steps most accounts receivable will do before initiating a business relationship with a new customer:

• Accept only one invoice for the first transaction, while the factor does due diligence
• Check the credit of the debtor listed on the invoice, and
• Confirm that the sale actually occurred.

The same supply chain tactics that make your company lean and profitable can become your downfall in just the blink of an eye.

That’s because the benefits of the drive to improve efficiency — running lean, just-in-time production, single-source suppliers — can also leave you more vulnerable than ever before.

Fortunately, the best solution is easily summed up in two words: Be prepared.

The fancy term for it is “risk management.” Either way, we’re talking about shooting for the same goal.

1. What could go wrong?

The first step in managing supply chain risk (or being prepared), is to identify and catalog the “what-if” problems that could possibly disrupt your operations.

A few to consider include:

• Shifting customer demand
• Changing financial factors, such as credit availability
• Other market pressures, such as your competitors or your supplier’s competitors, and
• Weather, natural disasters or similar problems (think Hurricane Katrina or the California wildfires, for instance.)

2. Profiling your suppliers

At the same time, you should gather material about your own company (think of it like you’re writing a book) that is critical to supply chain continuity.

This means your company’s operations, including production and fulfillment; and data about your suppliers and your customers.

Try profiling your top suppliers, by identifying:

• Who are your key suppliers
• Where they are located
• Is there another site that could fill in if the primary supplier or supplier site fell short?
• What’s their production capacity, and
• What’s their production flexibility? Can they turn on a dime to help you if you asked?

Today’s emphasis on lean production has left many companies dealing with single-source suppliers, without much of a safety net.

3. What else could go wrong?

There’s the flip side of this coin, too.

Does your company rely heavily on a small but powerful customer base? What would happen if one of those customers closed up shop or took its business elsewhere?

Another contingency to consider: Does your supply chain focus efforts on one primary “ship-from” location? Would you be prepared if a disruption put that area out of commission?

Of course, you’re not going to come up with all of the answers right away.

Risk management is an ongoing process. You can never be prepared enough.

But taking the time now to anticipate problems and plan contingencies could make the difference between success and failure for your company in the future.

Just ask any of the companies that have relied on China for supplies, parts and products.

Tens of thousands of manufacturers have gone belly up in China — often overnight — leaving many of your peers scrambling for a back-up plan.

If your business handles mainly middle of the road product, available from more than one source, you’re certainly better positioned.

But that doesn’t mean you don’t have to prepare yourself for any problems that might pop up.

What if another customer fails to pay your supplier, and it means your supplier can’t fill your order? What if something as simple as a shortage of shipping materials hangs up your next delivery?

No matter how secure you might feel today, you still don’t want to come up short if the unexpected occurs.

There are three ways you could offer to help:

• If your supplier is unable to obtain necessary product, offer to go one step further and deal directly with your supplier’s supplier. You might even be able to generate a volume discount.
• Depending on your relationship with the supplier, you could offer expert advice from your own staff on navigating process changes that could improve operations for the supplier.
• If it’s a matter of money — your supplier is locked into a contract with you, but the supplier’s costs have unexpectedly increased, you always could offer to negotiate a way to mitigate that cost difference.

More companies are suddenly floating belly up in the corporate fish tank.

This can hurt you two ways:

• The dead-in-the-water customer owes you money, and/or
• You rely — make that relied — on that company as a primary supplier.

But there are strategic steps you can take, in addition to what you’ve already done, to help minimize the impact of today’s shifting economy.

1. Identify your key suppliers and set up a monitoring system. If a primary supplier shut its doors today, would you have anticipated it? Do you already have a back-up plan in place? Or would you be left scrambling and grasping for new suppliers, who could take advantage of your desperation?

Three suggestions, other than your usual sleuthing:

• Subscribe to Dun & Bradstreet financial alerts
• If it’s a publicly traded company, seek copies of annual and quarterly reports, and
• If your company has an online brokerage account, you probably can access expert stock analyst reports on the account.

Spread yourself thinner. If you haven’t done it already, begin splitting up the suppliers for your most-vital products and services. There’s always been pressure to economize, which usually means consolidating with one supplier. Now, whatever you might be saving will quickly be lost — and more — if you continue to keep all of your eggs in one basket.

Expect an ebb and flow. Finally, in negotiating contracts for your company, make sure you include clauses that’ll protect from future increases — and reward you for future decreases. Many companies treat this as a one-way street. With the yo-yo nature of some resources, like oil, you’ll want the flexibility to roll with price swings in either direction.

But beware: Shooting for goals at face value can sometimes blow up in your face, especially if the goal is trimming money from the purchasing and procurement budget.

Case in point: You’re charged with reducing the purchasing budget by a specific amount, $XXX — without any loss in quality when it comes to suppliers and your purchasing performance.

Managers higher on the food chain often believe this is easily accomplished: Replace those expensive, old suppliers with cheaper, newer ones.

Uh, not this time.

Sure, you’re looking hard for suppliers that will out-perform your current suppliers — but they could very well end up being your current suppliers.

Your criteria remain consistent:

• on-time deliveries
• low rates of material defects
• high supplier service performance
• internal customer satisfaction, and
• lower prices.

Good news: You may not need to search far and wide.

Given the current economic climate, it could be an ideal time for you to negotiate with existing suppliers.

They might be more willing to make certain concessions, rather than lose all of your business.

One note of caution: Be sure you’re keeping track — metrics — against benchmarked performance, to prove in dollars and cents that you’ve saved money and improved purchasing and procurement performance.

There are four ways you can turn this into a real “you-scratch-my-back-and-I’ll-scratch-yours” relationship, not just a paper partnership.

• Put in a good word. Suppliers have competition just like you do. Want to help give them an edge? Offer a customer testimonial they can use as a reference or in marketing materials.
• Fewer bells and whistles. Maybe, once upon a time, you required specialized, customized treatment from your suppliers. Is it still a valid need? There might have been changes on your end — or with your customers — that could reduce suppliers’ hands-on time.
• The check is (really) in the mail. Everyone benefits from smoother cash flow — suppliers, too. Are there any potholes that delay payment to your suppliers? What can you do to reduce the time between invoice, accounts payable, and your supplier’s A/R department.
• Think big picture. Are there suppliers you should consider locking down into a multi-year deal? This pays off for suppliers, too, with the prospect of guaranteed future income.

Diminishing consumer demand tops the list of external concerns, according to the latest survey from Duke University and CFO Global Business Outlook.

One big concern that hasn’t grabbed many headlines: The “psychology” of bad times, says one finance VP.

How’s that work?

Even businesses that haven’t felt the economy’s squeeze firsthand are worrying that the fallout from the credit crunch and collapsing housing market will have a more widespread impact. The concern is that solid customers might feel the need to pull back into a defensive position, to ride out rough times for a while.

What are CFOs and other procurement execs worried about under their own roof?

For now, at least, it’s keeping your good people on board.

But running second and fast closing is worry over the ability to forecast results. When the business world seems to be shaken each day by new disclosures or events, crystal balls everywhere are cracking.

Order too little and you risk sending your good customers scurrying to your competition; order too much and the cash value crowding your shelves will threaten to weigh you down mightily.

With that in mind, the No. 4 inside problem cited by finance execs was supply-chain risk.

What’s all this mean?

It’s likely you’ll face even more pressure to tighten up supply chain finances, without compromising your ability to function.

Don’t count on hiring people, whether it’s for new positions or to fill vacancies.

You’ll need to be more plugged in than ever to other departments that’ll keep you up-to-the-minute on customer needs.

There are three areas to focus on, concludes Getting Value from Industry Best Practices, from SAP Executive Insight:

• Customer Service
• Supply Chain Responsiveness, and
• Inventory

In terms of delivering top-of-the-line customer service, it’s often at the top of the list for successful companies.

The two pillars of customer service are on-time delivery and proper lead time for order fulfillment.

And there doesn’t have to be a trade-off by sacrificing inventory levels and carrying costs. If communications are timely and hitting on all cylinders, peak performance in customer service and inventory efficiency can be compatible.

It’s a matter of determining and setting up a customer collaboration communication system that best suits your own needs.

For most companies, this means there’s a way to share real-time alerts to events that impact the supply chain — a truck breaks down, your supplier runs late, etc. The better system you have for obtaining this information and then quickly sharing it with affected customers, the better off you’ll be.

This melds into supply chain responsiveness. One of the best ways to beef up your ability to nimbly respond to rapidly changing requests is to collaborate with key vendors to establish Vendor Managed Inventory (VMI).

It then becomes a team effort, instead of disjointed pieces trying to connect.

The final piece of the puzzle is managing your actual inventory.

Once you’re plugged in with the needs of your customers and you’ve provided a mechanism for quickly reacting to those needs, it’s much easier to calculate how much inventory must be on hand.

Taking these calculations, combined with a “what-if-worst-case-scenario” accounting, you should be able to lower the amount of inventory on hand, and reduce your inventory carrying costs.

Why? It might not be so funny after all.

One e-mail sender’s idea of “funny” might sound like caustic sarcasm to the recipient, it turns out. That’s because e-mail readers are likely to misunderstand the tone of a message up to half of the time, research reveals.

So pause before you press Send.

Why is this a problem with e-mail?

According to Psychology Today, e-mail removes the opportunity for humans to “read” each other’s facial expressions and body language. Non-verbal communication makes up between 65% and 93% of human interaction (depends who you ask).

Also, it’s difficult to realize when you’re writing an e-mail that what you’re saying might sound significantly different to the recipient.

Solution: Re-read the e-mail. If you can, read it aloud to see how it sounds. Walk away, come back in a few minutes and read it again. Put yourself in the recipient’s place. How would you react if this e-mail showed up in your inbox?

OK, maybe dealing with vendors isn’t quite that bad.

But it is a complicated process. If you haven’t done your homework and put your ducks in a row, it can get ugly pretty quickly.

The best vendor-purchaser relationships are like those tandem Olympic divers who leap from the platform and match each other’s motions — well-planned, well-choreographed and well-executed.

What’s the best way for you to push your vendor negotiation skills from bronze to silver, and finally to gold metal status?

There are three key areas where you need to be prepared if you’re going to walk away from the table with reasonable results:

• What’s reasonable
• What you really want, and
• What you see as the ideal purchaser-vendor relationship.

So how do you know when you’ve pushed a vendor hard enough — without hurting your relationship?

• If available, get best-practice benchmarking data on what your industry commonly pays for basic purchases
• Categorize your goals: must-have, would-like, if-we-could, take-it-or-leave it, etc.
• Agree to build in an exit clause — for either of you — to get out of the contract if there’s a significant change in business conditions, and
• Be aware that your vendor has revenue goals, as well, and recognize those needs.

Before you sidle up to the negotiation table, be sure to have a firm understanding of what you’re seeking to come away with.

The way to do that:

• Identify the stakeholders in your company — who has the most on the line in this contract relationship
• Know the high and low limits, and where there’s flexibility, and
• Don’t be shy about putting (specific) requirements on the table with the vendor, so the vendor has an idea of what you’re looking to come away with.

Finally, how can you lay down some basic ground rules to help guide your relationship with vendors?

• Clearly state, as part of the agreement, the roles and responsibilities for both you and the vendor
• Agree on performance indicators and measurements to judge whether business goals were reached, and
• Make sure to set up the opportunity for an ongoing conversation with vendors, to keep the communication pathways open and to build a stronger sense of collaboration.