Businesses that want quick access to cash to improve their cash flow and help with the smooth running of operations often use invoice factoring. Factoring your invoices is a viable option for most businesses but according to the experts at Thales Financial, there are a number of common mistakes that businesses make when using this finance option. Below are a few examples and how you can avoid them.
Not Understanding the Terms and Conditions of the Factoring Agreement
Failure to comprehend the terms and conditions of the factoring agreement is by far the most common mistake that businesses make when factoring their invoices. Before you enter into any agreement, it is vital that you read it fully and be sure that you understand what your responsibilities are. This includes any fees that are applicable, what the advance rate is, and how long the factoring period is. If you are confused about any aspects of the agreement, ask your lawyer for advice or seek clarification from the factoring company.
Not Choosing the Right Factoring Company
You should be aware that not all factoring companies are the same, and some are simply better than others. It is important then that you choose carefully because if you go with the wrong one it could have negative consequences for your business. Do not just choose the first factoring company you come across. Look for one with expertise in your industry. Choosing a company that can provide an agreement to fit your business needs is important in terms of how successful invoice factoring will be for your company.
Not Properly Preparing Invoices for Factoring
Businesses that wish to use invoice factoring to get quick access to cash often fall down by not preparing their invoices properly before submitting them. If invoices are inaccurate or incomplete, it could result in the advance rate being lower or a delay to the funding process. It is important therefore to ensure that all invoices being submitted are complete with the correct invoice date, due date, and total. If discounts or taxes are applicable, these should also be clearly marked on the invoice.
Not Communicating with Customers about Factoring
Something that some business owners mistakenly do is fail to communicate with their customers about the fact that they are using a factoring company. If the customer is not aware of the agreement, they could rightly be concerned when they receive communication from a factoring company regarding payment. This lack of communication can have a negative impact on a company’s relationship with its customers. It is best to inform your customers of your intention to factor their invoices, explaining the reasons you are doing it.
Not Reviewing Factoring Agreements Regularly
Businesses that use invoice factoring should make a point of reviewing their factoring agreement on a regular basis to ensure that it is still meeting their need. Failure to do this is a common mistake. It makes sense to negotiate terms with your factoring company if your business has experienced growth or had any other significant changes.
When it comes to accessing cash quickly, invoice factoring is a great option. It allows you to get paid early for your outstanding invoices, which then means you can pay your own bills on time. However, avoiding the common mistakes above will ensure that your business makes the most of this financing option. It is important to make sure that you fully understand the terms of your factoring agreement and that you choose the right factoring company for your business. Furthermore, always consider negotiating your factoring contract should your business needs change.