Bay View Funding Blog

Worried about timely payment of your accounts receivable? Never underestimate the importance of a reminder letter. Try the ‘I want to help’ approach before considering a collection agency. One of the biggest headaches for any small business is the payment collection challenge.

If you have planned and worked out which customers are good credit risks, and have offered them payment terms, you may then be concerned about further late payment. So you want to employ the most effective tactics to encourage on-time payment. Are you prepared to ask your customers to pay their bills, or do you leave it until payment is late and decide on an approach then? Payment reminder letters are always helpful as a tactic prior to any form of late payment.

Why do we talk about cash flow so much? Because successful business is ultimately all about cash flow. It is always good to revisit the benefits of invoice factoring when it comes to cash flow management.

Just to clarify the role of a factor for those of you new to our blog, or to the process of factoring: Companies that are either struggling with cash flow or slow-paying customers can sell their invoices or accounts receivable to a factor. The factor advances the vast majority of the invoice amount, usually between 70 to 90%, once the credit-worthiness of the billed customer is checked. When the invoice is paid, the factor remits the balance, minus a small factoring fee.

So it is immediately apparent how factoring can help cash flow. Not having to wait 30-90 days for payment on outstanding invoices gives a company the ability to utilize that money immediately to pay bills or grow.

Every time you offer your customer terms on their invoices, you are extending credit. Do you have an application procedure in place in order for your customers to qualify for extended payment? Or do you offer 30-day payment terms or longer as a matter of course?

If the answer to the last question is yes, you may want to rethink your policy. No matter what, your customers should be applying for the privilege of paying anything from 30 to up to 90 days past the due date of their invoice. A well-constructed credit application tells your customers you are serious, and may also make them feel more comfortable about doing business with you.

Establishing that your customer is creditworthy means collecting all the information needed should the account become delinquent. It is always prudent to be prepared for late or non-payment from any of your customers. There are certain references that help establish the security of each account, such as bank references and trade references. Using these references enables you to establish past history with creditors, and also how well financial commitments are handled. In some instances, it may also be worth asking if good customers with less than healthy references are prepared to sign a personal guarantee. Should their business go into default, they will be held personally responsible for any outstanding payments.

Collection agencies can play a valuable role in accounts receivable management. The rules of engagement are not always clearly explained. Here are a few tips about when to use a collection agency, and how to go about picking the right one.

Does your company struggle to collect on payments from customers? Have you noticed a continuing slow payment trend? This could be because you have extended credit to the wrong customers.

Offering credit, or terms is certainly valuable. It can help your customers manage their cash flow, which could be the incentive they need to choose you for goods or services. Many of your competitors are more than likely extending credit to their customers, and it is important to keep up with your competition. But you do need to understand the limitations for your company before you decide.

• Do you have a grip on your profit margins?
• How much credit you can afford to offer to your customers?
• Do you frequently track all outstanding transactions and their value?
• Do you effectively project your cash flow?

Managing cash flow can be extremely challenging for a small to medium business, and we have discussed many times in previous blogs some of the best ways to manage cash flow. Collecting on delinquent invoices from customers to whom you have extended credit is not fun, so let’s review a few tips to make it easier.

In my last blog with Andrew Aquino, Executive Vice President at Bay View Funding, I mentioned that we would be chatting about the warning signs to look out for with some of the newer financial offerings on the market. Andrew also covered some of the major benefits of accounts receivable financing.

Importers, as well as transportation companies, in many specialized fields can achieve their working capital goals with the help of invoice factoring.

Whether product is to be imported or transported, the main requirement for a healthy business is a healthy cash flow. From fresh flowers, water saving shower heads, or movement of heavy machinery, Bay View Funding can help.