Receivable Factoring Can Help Simplify Record Keeping

Get Quick and Easy Quotes on Factoring Today!
Fill out our short and simple online form
Receive multiple competitive quotes
Choose the best quote for your Factoring needs!

Receivable Factoring Can Help Simplify Record Keeping

Most people who are small business owners deal with their own record keeping. Though you may hire an accountant to help you out at tax time, there's usually no money to hire such a professional to handle daily bookkeeping tasks. That means that you are responsible for invoicing, and for making sure that invoices are paid in a timely manner. Receivable factoring is one step you can take to help deal more effectively with accounts receivable.

Simplifying to Save Money and Time

In a small business, it's usually fairly simple to keep track of receipts, accounts and who hasn't paid for products or services. If you have a good record keeping system in place, you should be able to pull outstanding invoices at a moment's notice. But every small business owner knows that there's seldom enough time to go around. When it comes time to decide whether you're going to fill an order to take care of some bookkeeping tasks, filling the order will usually win out.

The potential there is to have outstanding invoices that are way overdue. There are plenty of reasons that overdue invoices happen. The original may have been lost in the mail or may have made it to the customer's desk only to be shoved aside and forgotten. A follow-up notice will often be sufficient reminder to get the customer to pay. But you have to have a handle on those invoices in order to know when to send out follow up notices.

If you choose a receivables factoring company to handle your invoices, you've eliminated (to a large degree) the need to keep track of invoices. In addition, most receivables factoring companies will send you regular notices of what invoices they've purchased and whether the customers have paid.

Some people might be tempted to use receivables factoring as a method of collecting from customers who are slow to pay or may resist paying at all. Before you take this step, consider the terms of your factoring agreement and the terms of collection.

Terms of Your Factoring Agreement

Some factoring companies charge a flat rate of three to seven percent. If they purchase your receivables, they deduct that fee and that's the end of your interaction on the part of those particular bills. Other companies charge based on how long it takes the customer to pay. For example, some companies charge one percent for every ten days an invoice is outstanding. That means that an invoice that's paid in eight days is only charged one percent. But a customer who takes sixty days to pay will cost you six percent of the value of the receivables you factored.

Consider that you're factoring on an eighty percent basis. That means that the factoring company pays you eighty percent of the value of your receivables. If the customer pays in twenty-four days, the factoring company will deduct three percent (one percent for every 10 days the invoice was out) and refund the remaining seventeen percent to you. Learning the dates that customers pay will help you reduce the amount of time your invoices are outstanding so that you can lessen the cost.

Keep in mind that some factoring companies will force you to maintain a reserve to help cover the costs of invoices that never get paid.

Get a Quote on Factoring
Get a Quote