A Few Reasons To Use A Factoring Company
If your business sells products or provides services to people on credit, it can be a nightmare trying to get all the money that is owed to you from all your customers. This can create a serious cash flow problem. While you might be okay with waiting when it is not affecting your ability to pay bills and buy more materials, at some point, the money you are not receiving can keep your business from operating.
It is important to get control of your accounts receivables long before it affects your business. When you are having trouble with this, you can sell the accounts to a factoring company. They pay you a percentage of what is owed to you and they then own the debt. Here are just a few advantages you will receive when you let someone else worry about getting the money.
Save on Payroll
When you have many customers who are far behind on their bill to you it can be time-consuming to try to get them to pay. You will need to have employees dedicated to making phone calls and working with your debtors. This will add to your payroll at a time when you cannot afford to have higher bills. When you sell the accounts to a factoring company, you won't have to worry about collections or having the staff to take care of them.
Money When You Need It
You do not have to sell all your overdue accounts to the factoring company. You decide which ones to sell that is best for your business. It is common to either sell them the oldest accounts on your books or to sell the accounts that owe you the most. You may want to keep any older accounts that are at least trying to pay you, even if it is just a small amount regularly. Of course, if you find you still need money, you can always sell more account to them.
When you are not receiving any money on an account, it makes sense to sell the account to receive a portion of what is owed to you. You can still claim the remainder of the debt at a loss on your taxes. While you may not be getting all that is owed to you, you should at least receive the cost of goods sold so you are not out the money you spent to get the product or service to your debtor.