AR factoring companies can advance you up to 80% of the value owed to you by your customers. You can use this money to take care of all your urgent financial needs, from covering the rent and utilities, buying supplies to fulfill purchase orders, and even to meet payroll.
But depending on your agreement with your factor, this crucial advance may not be the only benefit you get from them. In fact, the popularity of factoring stems from the fact that you also get “bonuses” aside from receiving your much needed working capital.
Here are some of the benefits you may receive:
- You will know the creditworthiness of your customers. When you have your invoices factored, your factor doesn’t really care a whole lot about your own credit rating. This is why so many small businesses turn to factoring in the first place.
Instead, the factor investigates the creditworthiness of your customers, where the repayment of the cash advance will come from. And you know the results of those CIs. You’ll learn which of your customers have a bad habit of paying late or which among them may end up not paying at all. Even if your customer has been paying you in full and on time for a year, if your customer actually has a bad history paying other companies then it’s likely that they will not pay you too.
Your factor can even investigate your new customers. This enables you to refrain from offering them credit terms when you discover that they don’t have an excellent history of paying what they owe.
- You get your accounts receivable in order. Your factor (especially the best factoring companies) can do this for you, so that everything is organized properly. Each of your customers will have their own file, with their invoices and payment history in your accounting system. Each file may contain all the correspondence. Invoices are tracked to see which ones are due, which ones are outstanding, and how much is owed to you.
Your factor can do these things as part of the service they offer. They have a vested interest in the state of your accounting, since after all they want assurances that they’re getting back the money they advanced to you.
- Your factoring company can take care of the collection. Collecting payments can be the most difficult part of a business. It may be off-putting to send reminders about due dates, especially when the customer is late. Doing this politely and professionally needs a delicate balance of courtesy and firmness.
With the best factoring companies, this task is no longer your responsibility. The factor takes care of it, and they’re the ones who will send the reminders. The best factors have enough experience in this matter, and they know how to do it in a way that will ensure you get paid without offending your clients.
Just remember, AR factoring companies are not magicians so don’t expect them to make things better for you all at once. But they can help a lot, and if you use their help wisely you may find that things will finally be looking up for your business.