Factoring Receivables: Five Ways to Help your Company

Factoring receivables is not just about increasing your cash flow.  When most people think about invoice financing, they are trying to plug a cash flow hole or support significant growth they are having in their business.  However, there are a number of other benefits invoice financing can provide to your company.  Here are five examples that may not be so obvious, but that can be super helpful!

• Credit checks on your customers – how many times have you extended credit to a customer of yours to win a sale without really knowing how solid that customer is?  It’s a classic mistake small businesses make and one that can be deadly!  When you work with a factoring company, you get access to a great service – customer credit checks.  Factoring companies have all sorts of tools and great databases to help with credit analysis.  So, push off that work onto experts rather than struggling with it yourself.

• Outsource your invoice mailing – Do you have to have your accounts payable staff do invoice runs and mail them out every day?  Once a week?  Once every couple weeks?  Choose to work with a solid factoring company and gone are the days of stuffing envelopes and sending out the mail.  Work with a really good factoring company and they will provide this service (and even the postage) for free.

• Analyze your AR Aging – How often do you review your accounts receivable aging?  AR aging is the lifeblood of a factoring firm and should be critically watched by you as well.  Factoring companies watch your AR aging like a hawk as they want to closely monitor your customer payment practices.  Many times, a factoring firm will purchase invoices from an account debtor, your “customer”, from multiple clients (i.e. not only your invoices!).  The factoring company may have excellent visibility into when you “really” will be paid rather than what is printed on the invoice that is sent to the customer.

• Assistance with Collections – Nobody likes getting stiffed, right?  As a business owner, you walk a fine line of providing good service or product to your customers and having to be tough when you’re not getting paid timely.  You know the phrase, “good cop, bad cop”.  Well, you can use a factoring company to be your “bad cop” when a customer is slow paying you.  The factoring firm staff can use verification phone calls and emails to nudge along your customers in a way that is not disruptive to your direct relationship with them.  You can get paid faster and still maintain a friendly sales relationship with your customer.

• Tax Compliance – Who likes paying taxes? I know, all of us, right?  Well, sometimes small businesses can get so focused on operating, they miss simple things like paying taxes on time.  Some small businesses even delay making tax payments in order to use the extra cash to operate their business.  Bottom line is that it’s not a good idea to do this.  Factoring firms usually employ an outside tax monitoring service to regularly check on any outstanding tax obligations that may have crept up.  Knowing these obligations exist can be very helpful to business owners if they desire to keep a solid business reputation as any tax liens that are filed are public record for anyone to see.

When I think of factoring receivables, I don’t just think of increasing cash flow for businesses.  I think of all the other positive benefits a small business can have by teaming up with a factoring company.  The biggest benefit may ultimately be the slug of cash you can get to fuel growth, or make a critical operational payment due, but it is worth investigating the other benefits possible!

For more information on invoice factoring, please download our free factoring guide.