How many customers take longer than 30 days to pay on their invoices? Congratulations! Your business just extended small business loans to your customers. You may not have thought about it this way, but you are now in the banking business. Even worse, you probably have the best rates in town. If your customer went into the bank and asked to use money over time, the bank would set up a small business loan. The loan would certainly incur interest charges along with late fees for payments past due.
So take a quick look at your accounts receivable aging report. How many of your customers are asking you to provide financing – at no cost? What is this costing YOU in terms of restricted working capital, borrowed funds, and missed opportunities? You are losing the use of that money while you wait for them to pay the invoice.
An increasing number of companies are factoring their account receivables as another solution. Rather than a last resort, businesses see factoring as a way to:
– Receive immediate working capital on invoices, often within 24-48 hours
– Reduce bad debt by screening customers upfront using the factor’s credit risk analysis
– Automate the back-office functions including statement mailing and collections
Often the services a factoring company provides as part of their standard operations will save a business as much or more than the factoring fees themselves. More importantly, a business has immediate access to working capital. After all, a sale actually counts when the money is collected. By using factoring in this situation can help your business streamline it’s cash flow , take advantage of early payment discounts, negotiate bulk discounts from suppliers, increase inventory for large orders, or add the staff and overhead required to fund expansion.
Scott DiBerardinis, Business Development Manager of Durham Commercial Capital. Visit our website at www.durhamcommercialcapital.com to lease more about Accounts Receivable financing.