Walden University ScholarWorks Walden Dissertations and Doctoral Studies Walden Dissertations and Doctoral Studies Collection 2016 The ffecE ts of Using Invoice Factoring to Fund a Small Business Ivan Justin Salaberrios Walden University Follow this and additional works at: https://scholarworks.waldenu.edu/dissertations Part of the Entrepreneurial and Small Business Operations Commons, and the Finance and Financial Management Commons This Dissertation is brought to you for free and open access by the Walden Dissertations and Doctoral Studies Collection at ScholarWorks. It has been accepted for inclusion in Walden Dissertations and Doctoral Studies by an authorized administrator of ScholarWorks. For more information, please contact [email protected]. Walden University College of Management and Technology This is to certify that the doctoral study by Ivan Salaberrios has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. William Stokes, Committee Chairperson, Doctor of Business Administration Faculty Dr. Cheryl Lentz, Committee Member, Doctor of Business Administration Faculty Dr. Judith Blando, University Reviewer, Doctor of Business Administration Faculty Chief Academic Officer Eric Riedel, Ph.D. Walden University 2016 Abstract The Effects of Using Invoice Factoring to Fund a Small Business by Ivan Justin Salaberrios MBA, Keller Graduate School of Management, 2011 BS, DeVry University, 2009 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University January 2016 Abstract Small business owners often do not possess the financial literacy to implement invoice factoring to fund their business. Despite that lack of knowledge, an increasing number of small business owners are using invoice factoring as their primary source of funding. Guided by a systems thinking approach, the purpose of this exploratory multiple case study was to understand the effect of invoice factoring of 5 small business owners, 5 small business finance managers, and 5 factoring program managers, all of whom managed factoring programs and technical services companies with less than $3 million in annual revenues. Participants were located in 6 states with data collected through semi- structured Skype and telephone interviews. Data were analyzed according to the Krippendorff method. Member checking and transcript review established trustworthiness and credibility of interpretations. Three themes emerged from interviews: owner eligibility for traditional capital sources, profit margins, and third-party relationships. The small business owners were not eligible for traditional funding options. Factoring administrators and small business owners cited that companies with better profit margins implemented invoice factoring successfully. Finance managers mentioned that factoring companies acted as a third-party to the invoicing and collection processes. Social implications include a contribution to the advancement of small business success rates and to an entrepreneur’s preparation to launch a business venture properly. The Effects of Using Invoice Factoring to Fund a Small Business by Ivan Justin Salaberrios MBA, Keller Graduate School of Management, 2011 BS, DeVry University, 2009 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University January 2016 Dedication This doctoral study is dedicated to my mother Aurea Nilda Garcia and my father Miguel Angel Salaberrios. Thank you for never giving up on us. Acknowledgments I would like to thank my wife and children for their continued support. My cousin Sharon Sáez for showing me the value of an education. My mentor Dr. Stokes for providing great support and helping me to approach my study one section at a time. I would also like to thank Dr. Lentz for the enthusiasm, energy and charm. Dr. Freda Turner for the patience and passion towards the success of all Walden students. I also acknowledge my committee members for helping to make this doctoral study a quality product. Table of Contents List of Tables ..................................................................................................................... iv Section 1: Foundation of the Study ......................................................................................1 Background of the Problem ...........................................................................................2 Problem Statement .........................................................................................................3 Purpose Statement ..........................................................................................................3 Nature of the Study ........................................................................................................4 Research Question .........................................................................................................4 Conceptual Framework ..................................................................................................5 Definition of Terms........................................................................................................6 Assumptions, Limitations, and Delimitations ................................................................8 Assumptions ............................................................................................................ 8 Limitations .............................................................................................................. 8 Delimitations ........................................................................................................... 9 Significance of the Study .............................................................................................10 Contribution to Business Practice ......................................................................... 10 Implications for Social Change ............................................................................. 10 A Review of the Professional and Academic Literature ..............................................11 Systems Theory ..................................................................................................... 13 Financial Literacy ................................................................................................. 13 Small Business Failure .......................................................................................... 17 Pros and Cons: Comparative Analysis .................................................................. 24 i Alternative Financing............................................................................................ 27 Formal Financing .................................................................................................. 33 Informal Financing................................................................................................ 33 Types of Financing ............................................................................................... 36 Transition and Summary ..............................................................................................42 Section 2: The Project ........................................................................................................45 Role of the Researcher .................................................................................................45 Participants ...................................................................................................................46 Research Method and Design ......................................................................................47 Method .................................................................................................................. 48 Research Design.................................................................................................... 49 Population and Sampling .............................................................................................51 Ethical Research...........................................................................................................53 Data Collection ............................................................................................................54 Instruments ............................................................................................................ 54 Data Collection Technique ................................................................................... 55 Data Organization ........................................................................................................59 Data Analysis Technique .............................................................................................59 Reliability and Validity ................................................................................................61 Transition and Summary ..............................................................................................64 Section 3: Application to Professional Practice and Implications for Change ..................65 Overview of Study .......................................................................................................65 ii Presentation of the Findings.........................................................................................66 Interview Questions .............................................................................................