Get the Most from Your Accounts Receivable Financing

One common method of alternative funding for your company can be accounts receivable financing. In this type of financing, you are taking an advance against the future payments of work you have already done. For instance, if you have repaired a vehicle for a customer and given them up to ninety days to pay the invoice, then you can take an advance from a factoring company for that invoice. The factor will take a small percentage of the invoice value for a fee, but you will usually have the funds within days. To get the most from this process, you will want to make sure that you have creditworthy customers, consistent collections and profitable payments.


Creditworthy Customers


Takin an advance on funds you know are coming can be a good way to fund projects that you need to do in the meantime, however, if your customers are not creditworthy, then those funds may not get there. This can create problems with your accounts receivable line because you are not able to pay that advance back in a timely manner. This is just one reason why you should be careful which customers you extend credit to. Customers who are not creditworthy can create cashflow problems without a factoring company involved.


Consistent Collections


One thing to keep in mind about accounts receivable financing is that you are still responsible for collecting on the invoices that you finance. This means that you need to keep up with your collections calls and invoices to help repay the advance. Regular and consistent reminders can be useful for your customers as well because they will know how much is left on the repayment and what kinds of overdue fees you can assign to them.


Profitable Payment Periods


It is not always profitable to take a longer payment period from your customers, even if it is to close a sale. Sometimes, it is better to require more quick payments and not have to do accounts receivable funding at all. Other times, it is in your best interest to make payment arrangements with your clients because they will keep coming back when they can make more, smaller, payments for your goods and services. In all, it takes careful planning to know which invoices are the best to extend.


Accounts receivable financing can be the best way to fund new projects while waiting to get paid for the past ones. To make the most of this funding, however, you will want to keep in mind whether your customers are creditworthy, whether you can be consistent in collections efforts and whether extending payment periods is profitable for your company.

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