One of the most frustrating and difficult aspects of owning a business is trying to secure money from customers, and in a timely fashion and so this can cause major problems for the business owner as a whole as they struggle to keep up with the expenses and debts that they owe to their own creditors.
Effectively, the longer it takes for a customer to actually settle their accounts, the quicker the capital reserves of the business will be exhausted and as soon as this happens, this means that the company will end up in a difficult position indeed, as it is no longer solvent.
This is a dilemma that is especially commonplace and acute within the world of healthcare practitioners, who are paid by means of insurance claims that are submitted by the patients who deal with them.
Given that the insurance companies can sometimes take as long as 24 weeks to actually get around to paying the healthcare practitioner, this can be an extremely problematic issue indeed for the cash flow of the business as a whole.
Thankfully, there is a solution at the ready for such business owners, and that is receivables funding.
receivables funding, also known as factoring, is the process whereby the invoices of a business, which have money owed on them, will be submitted by the company to a factoring agency who will then forward a percentage value of the net worth of the invoices.
The amount forwarded to the company that actually submits the invoices is very generous indeed; some of the best factoring agencies will provide the company with 85% of the outstanding balance.
This is a major benefit for the company, as it means that they have access to a significant amount of capital in a short space of time which will in turn; prove to be invaluable for the settling of cash flow problems.
The factoring agency makes a profit by deducting a percentage of the total value of the invoice and keeping it for themselves.
Given the fact that they are doing all the legwork, i.
e.
assuming full and total responsibility for the collection of the money owed by the customers, this is more than a fair trade.
Indeed, once you factor in the amount of money you save by virtue of the fact that it is the factoring agency that deals with the collection process, you may just find that the fees levied are minimal.
Receivables funding are commonly relied upon due to the fact that they offer flexibility and ready access to large sums of money for the business owner that actually hires them.
However, just remember that if you rely upon a recourse factoring agency, your company will be held fully liable for the outstanding balance of the bad debt owed.
Therefore, if a customer does not pay up, then you will be required to compensate the factoring agency.
Just make sure that you carefully weigh up the potential consequences of this issue, before relying on the agency.