Tips for Boosting Customer Relations Which Can Maximize the Benefits of Small Business Factoring

When you’re involved with small business factoring, your relationships with your customers invariably comes into play. When you factor receivables, you get an advance on the money owed to you by your customers. Your customers then pay your factor on the due date and then you get the rest of your money (minus the fee charged by the factor) when your customers pay in full.

The fee and the advance are all determined by the creditworthiness of your customers. You pay a fine when your customers pay late, and you have to pay back the advance when they don’t pay you back at all.

So it’s very important that you have a good working relationship with your customers. Here are some tips about customer relations so you can maximize the benefits you get from factoring.

  • When you have new customers, set credit limits for them. A new customer is usually an unknown entity, and so you have no idea of how (or if) they pay their bills. You need to set a credit limit, so you can monitor their payment habits without risking too much.

Your customer should know about the credit limit, and they should know what steps they need to take in order to get better credit terms. Perhaps when they’ve paid in full and on time for a given time period, you can increase their limit.

  • Always set clear conditions and terms in your contracts. You must have a proper written contract with your customers, whether they’re old or new. If you’ve been used to verbal agreements with your customers, that has to stop if you expect to factor receivables.

Everything should be specified, every word defined clearly, and every figure clarified. There should be nothing unclear about the contract, and nothing should be open to interpretation. That keeps the misunderstandings and confusion to a minimum. And if the terms and conditions change, a new contract must be drawn and signed by both parties.

The amount owed to you must be specified. And the due date must also be very clear as well.

  • Try to forge a secure personal relationship with your customers. Building a strong personal relationship with your customers doesn’t just get you more sales. It also ensures that the companies you sell to pay the amount they owe in the time specified in the contract.

A contract may not be enough to deter your customers from paying late. But if you have a personal connection with them, they may be less inclined to destroy or damage that trust.

Customer relationships are essential for your business. And it becomes even more important when you’re engaged in small business factoring. By having a strong relationship with your customers, you can also make sure that your relationship with your factor is smooth as well.

The Advantages of Small Business Factoring Invoice

A lot of small business owners immediately think about their banks when they need additional funding. But banks are – at best – a toss-coin proposition, because they’re just as likely to reject a loan application as approve of it. And that’s why small business factoring invoice funding has become so popular in recent years.

Banks Are Not All Too Willing

According to the most recent news released last February 15, 2015, big banks only approved 21.3 percent of small business loan applications in January 2015. And that small approval rating is actually an improvement from the previous month, which was only 21.1 percent.

Small banks are more generous, but even they tend to reject the loan applications of many small businesses. According the latest data, in January 2015 small banks approved only 49.6 percent of small business loan applications, and that’s down from the 49.7 percent approval rating of the previous month.

How Factors are Helping Small Business

Factors tend to have higher approval ratings because they don’t look at your credit history or collateral. What’s more important to them is the credit of your customers. So if you have reliable customers who tend to pay in 30 or 60 days, you can get the factoring funding you need. And since it doesn’t require a lot of paperwork, you will know the status of your application in just a few days, instead of having to wait weeks.

Fast Working Capital through Factoring

The emphasis on time is part of the benefits of factoring. You get about 80% of the value of the small business factoring invoice right away, instead of having to wait 30 or more days to get paid. When you have immediate needs for payroll, utilities, or supplies, this fast turnaround allows you more breathing room.

With factoring, the money allows you to stay afloat or even fuel your growth. You don’t have to worry about having enough money to cover an order, because the cash advance you get can cover your needs sufficiently.

Extra Services

Factors also handle your collection for you. They’re the ones that your customers pay directly. When your customer pays in full, the rest of the money is forwarded to you after the factor has deducted its fees.

While this may be of some concern when your customers need direct communications with you, for the most part you’re alright as long as you get a factor with a long history in your industry and a reputation for courteous and professional collection process. An experienced factor will know the best way to notify your customers about payments, and they can be very polite so your business relationships aren’t affected.

Also, since factors investigate the credit of your customers, you can use them to screen out potential risks among your new customers. If your factor doesn’t think your new customer will pay in full and on time, you can avoid them as they may be too much of a bother for your business. With small business factoring invoice funding, you can concentrate on your business and have enough working capital to boot.

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