When you run out of cash, your company goes out of business. It is that simple! Unfortunately, depending on what industry you work in, your small- or medium-sized business may suffer from clients paying later than when they receive a product or a service. This is normal in many industries, but the later they pay, the greater the risk it is for you.
In today’s fast-paced and ultra-competitive economy, it is imperative to receive payment as fast as possible. You can’t wait months and months to get your invoice paid. Or can you?
One of the more popular services around for SMBs is factoring receivables, or accounts receivable. This is a financial transaction in which a company sells its accounts to a third party at a discount so they can have some cash in their accounts. It solves a lot of headaches.
Here are five ways SMBs can flourish with factoring receivables:
1. Are You a Good Candidate?
Before you contact a factoring receivables third party, it is important to first determine if you are a good, eligible candidate. This is essential because you don’t want to get stuck into a contract and then later realizing that you should never have gotten involved in one.
How can you know if a superb candidate? Here are a few questions to answer:
- Do your clients regularly pay late?
- Do your clients have good credit?
- Do you have a hard time paying staff because of late payments?
- Does your SMB have any legal or tax difficulties?
These are good questions to answer before getting in touch with a factoring receivables firm.
2. Beware of Introductory Rates
When you first enter into a partnership with a factoring receivables company, you will be showered with all of these treats, features, benefits and so on. But beware of these generous offerings – introductory rates usually come with caveats or higher rates down the road.
You can protect yourself by combing through the fine print.
3. Don’t Get Locked Into Long-Term Contracts
This has more to do with novice factoring receivables companies than seasoned veterans.
What are we talking about? Long-term contracts.
Since factoring receivables firms want to nab as many clients as possible, they will put forward a long-term contract. This may be beneficial for some, but it should be avoided for most because you always want to consider your options, which may entail working with someone else.
4. Pay Attention to Aging Receivables
You always heard of the old adage “time is money.” Now that you’re in business, you can empathize with the phrase.
As the days go by, it is vital to pay close attention to your aging receivables. The faster the money comes in and gets reported, the lower your factoring receivables invoice fees will be. On the other hand, the longer the invoices come in and get posted, the higher the fees.
Simply put: keep a close eye on all of the aging receivables.
5. Let Factoring Company do the Collections
Let’s be honest: we know how much you detest the idea of collecting past invoices from clients – you don’t want to badger a customer, who then may threaten to take his business elsewhere. That said, industry experts recommend that the factoring receivables business should handle all of the collections.
For the most part, when factoring receivables firms buy your invoices, they also take over the responsibility of collections. Calls, follow ups and notices, they handle it all, something that ensures your company won’t get an earful from irked clients.
You need cash coming in to keep the business afloat, pay your employees and ensure the doors remain open. You can’t do this if clients are paying their invoices three, five or even seven months late. The only option SMBs may have in the end is to take advantage of a factoring receivables company. This offers you the money you need and takes the hassle out of chasing your clients for money they owe you.
Remember, in today’s world, people are quick to demand service, but they aren’t as quick in paying for that service. That’s just the way it is.