Business Finance Receivable
For business owners it often becomes difficult to wait for 30 to 60 days to get paid by the customers. Bigger businesses can usually afford this time period of waiting but not small businesses. For small businesses waiting to get paid by the customers can often create cash problems. This problem can often result in creating payroll problems in the company or to meet the bill payments. This can lead to problems and often the businesses are unable to complete their orders because of lack of cash.
The invoice factoring is also called as accounts receivable factoring and is one of the most important financial tools that would help the small business to develop working capital for their business on the basis of the slow paying invoices. With the help of accounts receivables factoring you can convert the invoices into immediate cash and this would help you in funding the business operations.
The invoices can also serve as collateral for the businesses to get credit from various sources. Most of the banks would not accept invoices as collateral to extend credit but there are factoring companies that would readily provide you finance based on the invoices. The invoice factoring would make up an important part of finance.
Tracking the receivables is an important part of any business. If the business does not have a steady cash flow then they would have to borrow money from other sources so that they can meet the needs of the working capital. Lack of working capital can even lead to the failure of a small business and this is one of main reasons why a number of businesses shut their doors every year.
The management of account receivables differs from one company to another. But the accounts receivable processes would usually require all the businesses to do three major things:
• The business is required to keep a daily record of the sales and receipts.
• Generation of customer invoices and monthly statements.
• Keep a track of the customers present and past due balances.
While setting up an accounts receivable process the companies are required to keep these three major points in their mind. Besides the points mentioned above there are few more issues that should be taken into consideration.
Accounting software: An accounting software can simplify the process of receivables and would additionally provide you with services like forecasting, tracking tools and invoices. Accounting software is being used by most of the small businesses these days so that they can handle their accounts properly. There are a number of accounting softwares available in the market and it depends on the features that you want that you can decide on the software of you choice.
The credit policy: when you create a credit policy for your small business venture then you should make sure that the policy is stringent. You should pre define the terms on which credit would be given and how much would be given to which customer. You should also make decisions on whether you would accept checks and credit cards and the manner in which you would check the new customers before you give them credit. This can be decided on two factors whether you would require your customers to pay deposits before you deliver the goods and whether you would be charging them with interest on any late accounts.
Billing policies: you should follow the rule that says that the faster you bill the faster you would get paid. You should decide as to when would you invoice and you should make sure that you hand out a word to your customers the billing policy before hand so as to avoid any confusion. In case you want your customers to pay you early then you can give them some amount of discount maybe 2% who pay within 10 days.
Aging accounts: as a small business venture you are required to review the accounts of your customers on a monthly basis. When you review the accounts you are supposed to classify the accounts as 30, 60 or 90 days or more past due. This will help you in deciding on the delinquent accounts and taking the necessary actions. You can hold the delivery of amount to customers who have bills past the 90 days due date.
Monthly payments: when you do business you should be very active regarding your accounts. You are required to send the monthly statements to your customers. These statements would serve as reminders to customers who are late in making payments. These statements would also provide documents in case the account goes into collection.
As mentioned above that the invoices can be used for getting finances from factoring companies; if you have clients that have account to be paid more than 60 days then you can use these accounts for getting accounts receivable factoring. This would help you in getting capital financing for your business. These accounts are sold to a factoring company and they would pay you immediately. Selling the receivables to a factoring company is pretty easy. This can be done in three easy steps:
• You deliver the goods or the services to the customers and issue invoice
• You can sell the invoice to a factoring company that would advance the first installment up to 90% for the invoices.
• After the client pays up the factoring company would refund the remaining amount after deducting the fees for their services.
When you give out your invoices to the factoring company you should make sure that the company is polite enough to your clients otherwise you might end up losing your customers. It is best advised that you create a business receivables factoring process so that you collect the invoices on your own.
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