How Factoring Can Help You Organize Your Business

Accounts receivable financing, also known as factoring, can be a great motivation for you to get your business organized. And the use of factoring itself can streamline your business and keep it organized. Here is how this works.

Prerequisites for Factoring

Before you even start applying for accounts receivable financing, you will have to organize your customer accounts. The factoring company will want to know who your customers are, how good their credit is, how much they owe and whether any of their invoices are past due. In order to answer these questions, you will have to have your paperwork for each customer organized ahead of time. You should keep all correspondence between you and the customer and copies of all invoices and payments as well.

The Factoring Process

Once a factoring company approves you for accounts receivable financing, they will take over the management of the customer invoices and payments. The company advances you the money due for those invoices, up to 90% of the value of the invoices. Then, they do all the work of collecting the money.

This means that you can focus on your business activities without having to worry about all the paperwork and hassle involved in collecting payments. The fact that the factoring company is doing all of the collections means that your business can stay organized and streamlined. You also will not need to worry about when your customers pay their bills. It will not interrupt your cash flow, because you have already received the money from the factoring company. The fees that you pay to the factoring company are well worth it when you think about all the work and headaches that it is saving you.

Vetting Customers Ahead of Time

The factoring company is not going to pay you for invoices billed to customers who are probably not going to pay. You will need to be more organized about determining which customers to extend credit to. You will need them to fill out a formal application, and you will have to check their credit report and references. Your credit terms and payment expectations will need to be spelled out in writing and enforced. You will have to keep your accounts up to date. All of this will force your business to be better organized and improve your cash flow.

The fact is that hiring a factoring company to take over your invoices will force your business to become more organized. The added organization will streamline your business and improve your bottom line.