Primarily such a small business is either a family business or an entrepreneurial venture. Whichever it is, it cannot be ignored that it requires a lot of time and effort on the part of the head decision makers to keep it a going concern.
Due to the smallness of the size, such a business is open to various more risks as compared to a large business some of which fall under market competition while others fall under finance and accounts or some other dimension.
While managing a small business the higher management has to be careful when identifying the rules and policies regarding the financial and accounting activities of the firm because research shows that small businesses have more risk of encountering financial problems than a problem of another dimension. For avoiding any situation where the misjudgment on the part of the managers should result in bankruptcy there should be clear and comprehensive policies regarding matters such as Transaction processing, receipt creation, accounts receivable, collection of cash etc. And get instant cash loans or short term loans.
Factoring is a process that comes into play when such transactions take place and to avoid risks of default, the businesses usually factorize their accounts receivables. This means that the small business sells their accounts receivables to a third party which will provide your business with some payment which is a percentage of the original payment. This becomes beneficial for a small business as the risk of a default on the accounts receivable is eliminated which can become very problematic for small business and at the same time ties up the funds. Also, the money is provided sooner which allows the business to have money up front rather than waiting and it can invest it further.