Managing your accounts receivables can be a daunting process. Trying to get your customers to pay their bills in a timely manner isn't always an option as some customers take advantage of business credit. When you extend payment terms to them, it will eat up your cash flow. If you don't have money coming in from your customers and your cash flow is starting to suffer, it will have an impact on your corporate credit soon because it won't be long before you start missing payments to your lenders.
A great way to manage your accounts receivables is by using a process called accounts receivables factoring. Accounts receivable factoring gives you the opportunity to hand over all of your invoices to a factoring company. They will provide you with a down payment amount for your invoices now which can be about 80% of the total invoice amount. After the customers pay the factoring company the rest of the invoice amount, you will be paid the rest of the invoice amount minus the fees from the factoring company.
Account receivable factoring is a simple way to acquire money in a hurry to pay for working capital needs. When you actually have money coming in, you can start taking on larger orders as you can actually purchase the raw goods and materials you need to fulfill your customer's orders.
Unlike a loan, account receivable factoring doesn't require you to go through the traditional lending process of filling out an application and having them run your credit background. The factoring firm is concerned mostly about the backgrounds of your customers. They want to see that your customers will make their payments in a timely manner.
Factoring firms usually only take on invoices that are less than 60 days old. Once an invoice starts to get old, it is harder to collect on the funds from the customers. The factoring company will have a harder time getting them to make their payments, leaving the factoring firm in a predicament as they need the customers to pay in order for them to get paid.
Any older invoices should be sent to a collection agency instead of using account receivable factoring to try and collect the funds. Collection agencies have the right type of agents working for the company that specialize in getting customers to make their payments. Be careful with collection firms as they do have a reputation for damaging relationships with your customers because they are trying to get them to pay on their invoices.
One other option you have is to try and get your customers to make an initial payment when they purchase the products. Anyone with bad credit or has stiffed you on a bill in the past should pay the full amount at time of purchase. This way you will be able to sustain your cash flow as you are actually collecting the funds from your customers. Some companies use initial down payment amounts and then set up recurring deductions from a credit card or bank account to pay off the remaining balance on the account. This is another great option that will help you sustain your cash flow.
Account receivable factoring is a great tool for any business. You can use it as a form of financing if you need to collect on the funds now to pay of new equipment and machinery. Account receivable factoring is easy to acquire as you just need to have some invoices to send to the factoring company. Work with a couple different companies to try and find one that can provide you with the lowest rate for their collection services.
Corporate Credit Concepts specializes in account receivable factoring. For more information about account receivable factoring and how it might benefit your business, please CLICK HERE for a free phone consultation.