If you need to increase your business cash flow then factoring is a great financial solution for a range of small businesses. But if you think invoice finance is for you, what steps should you follow in order to access the cash tied up in unpaid invoices?
1) Understand your Outstanding Account Receivable
You need to know a number of things about your customers and current invoices in order to gain the best understanding of what your business can gain from factoring. Get to know the credit worthiness of your customers – this will help you to get ahead of the game as once you apply for a factoring service, the lender will do all the same due diligence checks.
You also need to know your payment terms. Whether or not you give the same payment terms to all customers, you need to be sure that you know what money you’re due and when. It’s also important to look at your payment history – which customers pay late or on time, and how long on average you’re left waiting for payment.
2) Choose which customers you want to factor
Once you’ve got a deeper understanding of you invoicing procedures and your customer payments, you’ll hopefully be in a position to start thinking about which specific accounts you want to factor. In general, your most reliable customers are a good choice for factoring – the regularity of customer payments keeps financing costs to a minimum and presents less risk. However, it can also be used to limit late payment – you’ve just got to make the right call for your situation.
It’s important to remember that factoring is a flexible solution – while it’s possible to factor all your invoices, you can pick and choose those customers who are most suitable. You can factor enough customers to solve temporary cash flow problems; picking your ‘best’ customers will reduce your risk and fees incurred.
Once you’ve got all these things decided, it’s time to find your factoring firm. Here at Select Factoring we’ve got years of experience in the invoice finance market, and we could help you to solve your factoring dilemmas. Get in contact with our team today for expert advice and fast, flexible and reliable invoice finance solutions.