Is Business Accounts Receivable Factoring A Good Option
It is difficult for a small business to offer their clients credit and financing options for their product. Usually people and companies that request credit will need between fifteen and thirty days to pay you. Thirty days can be a long time when you do not have capital to spare and must renew your inventories. Accounts Receivable factoring is the answer to this.
There are many financial institutions that specialize in factoring, most banks do it too. Before going to someone you do not know ask your bank first if they can help you with this. Most banks have factoring problems and since you already have a relationship with them it will be easier. If you have never done this before you should start slowly.
You should start with your best clients bills. The people that you are sure will pay their bills on time to the bank. It is not good to start this kind of relationship with the bank bringing to them bills that are not paid on time. So make sure that all the bills you present to the bank on this first time belong to good reliable clients.
When the amount owed is not great, the bank will accept the bills from you without question because you are their client and have been doing business with them. If the bill is important they will want to do a quick credit check or talk to the Better Business Bureau if it is another business. Generally they will take the bills because you will at the end be responsible for them being paid.
The bank will take a small percentage of the bills depending on the time frame they must wait to collect. It is not much and it is always better than having to wait for clients to pay to get new merchandise. Factoring is the easiest way to keep fresh money in your business while at the same time taking care of your clients credit needs.
Factoring is done all over the world every day at every level of business. It is done for hundreds of dollars and it is done for millions of dollars too. It is a situation where everyone wins because the business gets the money it needs to work and the lender gets to make a percentage over the bills he is factoring. The client gets his credit, the business gets fresh money and the bank earns a percentage.
Problems will arise only when the chain is broken by a client who does not pay his bill on time. The business which factored the bill is still responsible for the payment. Every day that goes by and the bill is overdue, interests keep mounting and they are not regular interests but overdraft interests. The worst damage is to the businesses credibility though.
This is just a warning to let you know that you as a business must be extremely careful to whom you open your credit doors. It is important to verify their credit no matter who it is. If it doesn't feel right, it probably isn't so don't do it. It is your business it is better to lose a client than to go through the hassle of collecting a debt. Always stay on the safe side.