In the third part of our series on ineligible invoices we continue our discussion on strategies to keep your invoices eligible.
Contra Accounts: If you are selling to, and buying from the same company your ar lender may make this account ineligible. There are several things you can do to try and keep these invoices eligible. Ask your factoring company or asset based lender if you were to obtain a no-offset letter from the company in question would they then consider the account eligible in your factoring facility. A no-offset letter is a simple agreement between you and the company in question where they agree not to offset the money they owe you against the money you owe them. This may give your AR finance company comfort. If your accounts receivable factoring company won't accept, then you should make sure to request that they should only consider that portion of your invoices below the amount of the debt you owe the company to be considered ineligible. Your justification can be that if the company was to offset against the accounts in your factoring facility, they can't offset beyond the amount of money they are owed.
Accounts Related to Product Samples: The amount of AR you have outstanding that are the product of samples should be relatively small. You need to know when to pick your battles. If this is in fact a small amount, I would be ready to give this to your lender in order to get a some of the other things for which you are negotiating.
Accounts That are The Product of Lengthy Contracts: Try to keep your contracts as simple as possible. It may be worth having a competent lawyer review your contract with the job of slimming it down to make it more easy to understand and more compact. A competent factoring executive will review your contract with the goal of finding issues that could affect the invoice being paid. Do your new factor a favor and highlight any issues that he/she might be looking for in the contract and explain why these may not be an issue with any mitigating circumstances.
To summarize our discussion of ineligibles, it is always important to tell your lender or factor the truth, and do what you say you are going to do. Factors are people too. If you treat them with honesty you may find that they can be more flexible than you think. Ask them if there is anything you could change in your business to make the accounts eligible. All lenders want to see you succeed. It is in no one's interest for your company to have cash flow problems.
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