Accounts receivable financing, also known as factoring, is an alternative form of financing for your business when you need funds quickly or have difficulty obtaining traditional loans or lines of credit. If you are considering using this form of funding, it’s necessary to have some basic financial organization before your application and more precise and detailed organization as you progress.
Here are some organizational tips if you are considering using accounts receivable financing for your business.
Organization Before You Start
Before you become involved in factoring your invoices, you need to have some basic information organized for your application. This includes a list of current clients, their credit terms, and how many pending invoices they have. The factoring company also requires records on when the invoices are due, which are current, and which are late.
Preparing Your Accounts Receivables
Prior to approval of your application, the factoring company requires information on the creditworthiness of your clients. Prepare for this eventuality by keeping records of the conditions clients need to meet before you offer credit, the precise credit terms for each client, the business credit reports of your clients, and appropriate references and guarantees. Your late payment policy should also be clearly delineated. Keeping up with all these details enhances the quality of your company’s organization and also readies you for your funding application.
The Role of the Factor
The factoring company assists in your company organization by taking on the management of your accounts receivables. When you send an invoice to a client for products delivered or services rendered, the factor sends you an advance of up to 90 percent of the invoice value. After the customer pays the bill, you receive the balance of the funds minus a factoring fee. The factoring company takes over the bulk of the accounts receivable paperwork, while you focus on sales, services, and growing your company.
For more advice on accounts receivable financing, contact Norus Capital.