Accounts receivable is the money that keeps your business running. Whenever you issue an invoice to your client, you have made a sale and when the customer pays the invoice, you have cash flowing into your accounts.
The only down-side is that the outstanding accounts receivable also represents the money that you could be used for several things including paying salaries, increasing inventory, investing in marketing, etc. By using accounts receivable factoring, you can free up a good deal of that money.
Tips for Leveraging Accounts Receivable Factoring
Accounts receivable factoring is one of many ways to free up cash to solve your cash flow problem and expand your business seamlessly. So, here are 5 tips to make the most out of accounts receivable factoring.
Before starting to work on factoring, you need to get your accounts receivable in order. You need to find out which customers have outstanding invoices, how much they owe you and when was the last date to receive payment. You do this by getting organized.
Each customer should have a statement which includes their credit history and all correspondence including emails, SMS and postcards that you send to that customer. This will give you a comprehensive picture of your customer’s timeliness, payment history, and creditworthiness.
You must enter all payments into the accounting system instantly after receipt. This will allow you to keep track of which invoices are outstanding and give you an accurate picture of when a customer is paying their invoices.
Have clear Terms and Conditions
When a customer does business with you, they should not have any doubts in mind about your credit terms. It is a good idea to have a properly framed terms and conditions in place. It is more advisable to have a contract in place with any customer to whom you extend credit. If you ever change anything in your terms and conditions, the customers should be informed by either means of communication.
Check the Creditworthiness of All Customers
Before extending credit to any customers, you should check their worthiness. It is advisable to extend credit facility to existing customers instead of new ones. If you are working with an invoice factoring firm, ask them to do this for you. Whenever you have a new customer, check their creditworthiness and then do business with them.
You should check the creditworthiness of all your existing customers. You may have a customer for several years who always pay in time and never overdue the invoices. But, they might have a very poor credit history with other creditors or may have a poor payment history with financial institutions. You have to decide to keep all these factors in mind.
Use Credit Limits for new Customers
When you decide to provide goods or services to a new customer on credit, use limits at first. It may be $500, $5,000 or $50,000, depending on your industry, revenue, loss-suffering ability, cash flow, and other factors. Whatever may be the amount, be sure to have a credit limit in place. You should also frame terms and conditions for credit limit appraisal and inform the customer on how they can increase their limit by paying on time.
Build a strong relationship
Try to build a personal connection with each customer that you work with because it makes it less likely that a customer is going to do something that will affect this relationship. You should know the people behind your customer’s brand. Follow them on social media, have a relationship over call and connect with them frequently to check how things are going on with them. Make a note of their birthdays and never forget to send them a birthday wish; show them that you care.