4 Tips When Using Accounts Receivable Financing
Accounts receivable financing helps you free up money that you can use for business operations such as increasing inventory and payroll. In essence, factoring receivables help to keep the business afloat. Invoice factoring Canada companies help companies to receive early payment based on the outstanding invoices. There are several tips to help you make the best out of factoring finance.
1. Compile invoice data
Factoring finance should be embarked on once you have your accounts in order. For starters, you need good records of the outstanding invoices and those that are past the payment date. Before factoring, you also need to know how much of this money is held up in the account receivables portfolio. All this points to better organization of your books of account.
Factoring finance also requires financial information about your customers. This includes their credit application information, history of payments and their creditworthiness. Keeping track of the invoices and outstanding balances gives you a better picture of how much money is tied and when you can expect this money.
2. Draft clear contracts and terms
Businesses need to extend credit to customers, however, the terms should be clear for every customer. It is crucial to have a water-tight contract in place when dealing with the customers who obtain goods or services on credit. As a business, you also need to review these contracts and ascertain whether they are working for the good of your business. Make amendments where necessary so as to avoid holding too much cash in the unpaid invoices. Accounts receivable financing should be done in the backdrop of clear contractual agreements between you and your customers. For more information, visit FundThrough and learn more from the available resources.
3. Apply credit limits where necessary
As a long-term strategy to factoring finance, you need to apply credit limits. This is especially important when dealing with new customers. It is important to first gauge the payment schedules of new customers before you extend credit to them. As a business, you also need to be upfront and clear about your terms and conditions of credit. This will reduce bad debt and increase your cash flow.
4. Exercise caution when using accounts receivable financing
Invoice factoring is designed to help you obtain cash on outstanding invoices. It should be used as a temporary solution to cash flow problems. It is prudent to note that factoring receivables is not a long-term strategy for your cash solutions. As a business, you need to address cash flow problems. If you find that you cannot meet your payroll, then consider cutting back on the staff or outsourcing some of your business activities.
Invoice factoring Canada companies advance you cash on your outstanding invoices. They can also collect the debt owed to your business. Factoring services can be used to solve cash flow problems to ensure that your business operations run smoothly.