One question that clients often ask is “how can I get people to pay me quicker?”.
As they say “cash is king” and with ever spiralling bad debt due to the recession, everyone seems to be feeling the pinch. It’s possible that your customer is waiting to be paid before they can pay you.
But there are options for you to boost your cash flow. If you are a small business owner and extend credit to many of your customers and don’t want the hassle of chasing debts, consider collecting your debts via debt factoring or invoice discounting.
1. Debt factoring – With debt factoring you “sell” your credit sales to a debt factoring company for a discount. In return, the debt factoring company advances a percentage of your invoice totals upfront to give you some immediate cash flow. Typically, you’ll receive about 80% upfront.
You can choose a full service debt factoring option, which sees the debt factoring company carry out much of the adminstration associated with collecting accounts receivables (sending statements, chasing late payers, carrying out credit checks, etc). The debt factoring company charges a small adminstration fee. But compare this to the time it takes you do all of this, which is probably preventing you from focusing on growing your business.
2. Invoice discounting – The 2nd option is where you discount your invoices to a debt factoring company. Essentially, you’ll be given a “line of credit” by the debt factoring firm that you can use. Again, you’ll be charged a small administration fee and you’ll need to pass a credit check as you are effectively being given credit.
Most debt factoring firms won’t accept all invoices. They are unlikely to accept invoices in dispute and/or invoices overdue by 90 days or more.
So, if you’ve got a good track record, sound terms & conditions and a reasonable level of turnover, consider using one of the many debt factoring companies. Your cash flow may thank you for it!