In part 1 of this series, we discussed the different types of ineligible invoices and why factoring companies make them ineligible.  

In today's post we will discuss some simple strategies to keep your accounts eligible and your working capital flowing.  

• Accounts 90 days past invoice date, or 60 days past due date:  This first suggestion will apply to the rest of the categories as well.  Make sure that when you are negotiating the terms of your factoring agreement that you bring up the issue of ineligibles.  Your future factoring company or lender will be in sales mode at this point, and will be much more likely to negotiate these terms.  If you grant your customers terms beyond 60 days to pay, make sure that your factor understands that this is part of your business, and is common in your industry.  Make it clear that you would prefer to have your ineligibles calculated from 60 days beyond due date, instead of 90 days from invoice date.  That way, if you are giving your customers 60 day terms they wont become ineligible until after 120 days from the invoice date.  If you have a large invoice that is close to becoming ineligible you might want to offer your customer a small discount if they pay before the ineligible cutoff. Profits are nice, but business is really about cash flow.  It may make sense for you to accept a smaller profit on the invoice if it keeps your cash flow intact.  The next time this customer comes to you with an order remember the discount you had to take, and how long it took you to get paid.  Sometimes the best decision you can make is not to take the next order.  Don't get too caught up in top line revenue.  It may be a sale for accounting purposes but as a manager / owner of a business myself, I don't consider it a sale until I collect on the invoice.  

• Cross Aging:  Make sure to ask your factor if they use cross aging in determining ineligibles.  This percentage can have a dramatic affect on your cash flow, and should be negotiated heavily.  The larger the percentage, the better for you.  My experience has been that 25%-35% is industry standard. Start your negotiation at 50% and see where you land. Remember that it might not be an issue now, but you never know what will happen in the future.  The same strategy to avoid past dues above should be applied here.  It you know that one more ineligible invoice will make the entire customer ineligible then you need to speak with your factoring company and ask if you can have short waiver on the invoice until you are paid.  Use caution when asking your lender for favors.  If you don't live up to your end of the favor you will get to experience "lender fatigue" up close.  I have always been willing to give my clients the benefit of the doubt as long as they always tell me the truth, and do what they say they will do.    

• Foriegn Accounts:  If an important component of your sales is international, you need to make sure that these can remain eligible.  If you don't already have it, you should ask your factor if credit insurance on foreign customers can keep the accounts eligible.  The underwriting that the credit insurance company will do on your customers may make your lender more comfortable.  When dealing with foreign customers, make sure that you get all the information you can on the country and your customer so your factor will be informed before a decision is made.  As an example, they may be willing to advance against sales due from a foreign subsidiary of a large US corporation.  You should always check to see if the US corporation guarantees the debts of the foreign subsidiary.  Don't be afraid to ask.  

• Related Company Accounts:  If you are a controlling shareholder of the company that you are selling to, there isn't much you will be able to do.  The relationship is to incestuous for most lenders.  If you are only a minority shareholder of your customer, with no real decision making authority you may be able to make an argument that the account should remain eligible.  

This is getting a little long.  We will continue our discussion of ineligible account strategies in the next post.  

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