Do’s and Don’ts of Accounts Receivable Financing
Accounts receivable financing (also called factoring) is a common solution used by businesses who use invoices to bill their customers. With this solution, you sell your unpaid invoices to a factor, who then advances you up to 90% of the total amount. Once your customers pay their bills (which are paid to the factor), you receive the remaining amount minus the factor’s fees. Before you commit to factoring, here are a few things you should keep in mind.
Do Your Research
There are several factoring companies out there and no two are the same. Take a close look at several companies before you apply, which helps you to find the best company to suit the needs of your business.
Don’t Settle
Again, there are several factoring companies out there. Even if you’re in a hurry for funds, don’t settle on the first one you come across. It’s important to choose a company that you feel comfortable with and that meets the needs of your business. If a company is too pushy, makes you feel uncomfortable, or appears shifty, don’t apply.
Do Read All Terms and Conditions
Before you sign, be sure you read all of the terms and conditions. This will help you to get a better idea of the factor rates, fees, and other information pertinent to your agreement.
Don’t Sign if You Don’t Understand Something
If you don’t understand something in the agreement, don’t sign it. Ask the company questions. A credible company will be more than happy to help you understand your accounts receivable financing agreement so that you know exactly what you’re agreeing to before you sign.
Do Read Reviews from Previous Customers
Don’t just assume a company is a great one (or the right one for you) based on what its website says. Read reviews before you apply. This will give you a better understanding of the experiences of past customers. Their reviews can give you an idea of what to expect from your own experience.
Don’t Choose Based on Rates Alone
Lower factor rates can be incredibly enticing. Don’t select a company based on these rates alone, however. Keep in mind that there may be other fees involved. Other factors should also be taken into consideration, particularly whether or not the factoring company is a good fit for you.
With accounts receivable financing, you can get the working capital you need for your business without having to wait for your customers to pay their invoices. As a result, you can comfortably meet the needs of your business. You can also take advantage of unique opportunities that can help you grow.
