Upping cash flow can be tricky for many businesses, but business-to-business (B2B) providers have a unique opportunity to generate funding when it comes to invoice factoring. Looking to their accounts receivable files, savvy business owners can leverage bills needing to be paid to generate funds to keep their company in the black.
Recourse Versus Non-Recourse Contracts
Key to making deals such as these work is an understanding of the nuances of such a financial measure. First of all, it is important to note that factoring is not precisely a loan, but in certain instances, business generating funds through selling their accounts receivable may be expected to pay back monies never received by the purchasing entity. For instance, when an invoice factoring contract includes a recourse clause, the selling business may be required to pay a hefty fee or pay back a large amount of money if clients fail to payback their debts. To avoid this, be sure to stipulate that your contract is a non-recourse agreement. This may be less attractive to debt purchasers, but it can be done, especially when the credit value of the clients involved can be confirmed.
In situations where clients are likely to be slow to repay their credit lines with various types of companies, invoice factoring can be a very discreet method for ensuring that no disruption to cash flow occurs. Whenever possible, though, reputable business owners should establish that the practices of the debt purchasing companies are equitable and ethical. In cases where the purchasers and sellers of accounts receivable operate with very high standards, invoice factoring can be an exceptional tool for maintaining relationships with loyal but slow-paying customers. Selling the debt removes the stress of dealing with the accounts themselves and allows for amicable relationships between clients and providers.
Free Your Staff for Better Things
Invoice factoring allows business owners to cultivate client loyalty, downsize office expenses, and turn pay-later into money-now potential. With an increased and more consistent cash flow, the purchasing and investment power of the business owner increases as well. That helps to ensure that the company will do much more than stay afloat. Liquidity helps the business to stay in the black and flexible for expansion, diversification, and lucrative relationships. With so much at stake, invoice factoring should be something B2B providers consider for their routine accounts receivable maintenance. Freeing up office staff for other work, transferring invoices to purchasers regularly helps to keep all other things operating smoothly.