Many companies will choose Invoice factoring which provides for several notable benefits for users of these services. It is a good idea to understand some basics around what factoring is and isn’t in order to determine if it is appropriate to implement. Basically speaking, a factor is assuming the right to collect on the receivables of a company in exchange for a factoring fee, which typically is a percentage of the revenue that is being factored. The factor will collect these receivables on behalf of the company and will incur the financial loss of defaults on any receivables that are uncollected. Factors will provide the company with the payment on the outstanding receivables (less the factor fee) which can help to improve on the cash flow of the company by making it more predictable. Here are five tips to improve on your Invoice factoring process to help push the success of your business forward.
Factor and Non-Factor Sales
Some factors will reject certain receivables that they deem to risky which can impose a major limit on a company’s ability to grow. To combat this, a company may want to discuss with their factoring agent the ability to maintain some sales as non-factor sales so that they can continue to grow and the company can choose whether to sell to these risky accounts or not.
Review Write-Offs and Collectible Balances with Your Factor
Schedule regular meetings with your factor and identify those accounts that the factor was unable to collect on. By doing so you can help to aid them in collecting and benefit from lower factor rates. The less your factor has a challenge collecting the lower they are going to go in the rate that they charge you for factoring your receivables. By avoiding troublesome accounts you can benefit your bottom line, even if you aren’t on the hook for the receivables at the end of the day.
Create File Sharing Sites
A factor will need certain documentation to pursue collection on balances including contract copies, proof of deliveries of goods or services, and contact information for your customers. Investing in a high quality file sharing network and training your staff on the use of this file sharing network will help to push your relationship with your factoring agent forward and improve on the collections that they have and help to avoid the document requests that may inhibit your company’s ability to focus on what matters to your company; growing the top and bottom line.
Have a Staff Member Dedicated to the Factoring Relationship
One of the big benefits of using a factor is the ability to avoid having collections personnel on hand and to allow you to streamline your business operations. Regardless of this benefit, a company should still have staff members who are dedicated to the relationship with the factoring agent and engaged in regular discourse with them so that you can avoid the potential breakdown in the relationship. An employee does not need to be solely devoted to factoring, but should be focused on paying attention to the details of the relationship and reviewing reports and feedback from the factor.
Review the Factor Relationship Routinely
Using an factoring agent is not a set it and forget it process. It takes regular maintenance and requires care to review and assess. Having a quarterly review process surrounding your factor relationship can help to improve your financial flexibility going forward and allow you to renegotiate the terms of your factoring agreement more effectively in the future.
Factoring relationships can be challenging to enact and follow through with but can be made easier with the aforementioned tips. Many businesses falter when factoring by not paying attention to the details and not reviewing their arrangement regularly. When entering into an factoring agreement you should monitor regularly and reevaluate the relationship for the best overall results.