Advantages of Invoice Factoring
In addition to the obvious advantage of accelerated cash flow, there are several other advantages to Factoring all your Receivables.
Customer relations and cash flow can be improved with the use of full factoring (as opposed to “Spot” factoring where only certain, individual, selected invoices are factored—not something that most factoring companies do). With factoring, the responsibility for the administration and collection of Receivables rests with Aberdeen Funding. You, as a business owner, can therefore maintain a separation between the functions of best serving your customers’ needs for your goods or services and the sometimes stressful job of collecting money on aged invoices.
Your outsourced Receivables department (Aberdeen) can now take responsibility for attending to debt collection including the provision of copy invoices where the need arises, the mailing of monthly statements to customers showing an itemized list of unpaid invoices and so on. This lends an aura both of size and professionalism to your business. Of course, we are always mindful of your special relationship with your customers and, apart from maintaining courteous and professional communication with them, we may call on you at times to provide liaison with them and so build a team approach to your business relationships.
When customers are aware that a Factoring company is involved, they may even pay their bills more promptly, further improving your cash flow. Since the Factoring company may also be handling accounts for several other of your customers’ suppliers, customers will be careful not to jeopardize their credit rating by slow payments, as non-payment to one supplier may immediately damage their rating with others.
Factoring may save a company money. Many firms are not able to mimic the services offered by the Factoring company in Portfolio administration, Receivables monitoring, Credit reviews and the like for anywhere near the same cost. With a structure designed to accommodate the needs of many companies, the Factoring company enjoys economies of scale and huge efficiencies that individual companies cannot hope to achieve. By perhaps adding a small percentage to your Selling Prices, the cost of factoring can be substantially reduced without any impact on your customer relations—who will object, for example, to paying $101 for something as opposed to $100—unless prices are set contractually, of course.
In a nutshell:
- Credit evaluations and setting of appropriate credit limits
- Collection of delinquent accounts
- Record keeping and all related accounts receivable costs may be significantly higher if a firm must carry its own Receivables or Credit department.
- Much less than the cost of a collection agency
- Factoring companies may be able to generate additional business for its clients through its exposure to a large number of accounts across the broad spectrum of the Factor’s portfolio and hence providing introductions to possible future customers to its clients.
- By passing on the Receivables function to Aberdeen Funding, the company is able to focus all its energy on its core competencies without distraction.
- A company can gain quick and easy access to credit reports on all current and future customers. Better to know you are going to deal with a slow payer before you sell your goods or services! Better to know that your existing customer is now suffering a financial decline and is no longer able to pay for product or services.
Once associated with a Factoring company, a client needing other forms of financing such as Asset based loans against inventory, Purchase Order Funding to cover the cost of imported goods for sale to customers, Letters of Credit, can quickly access these resources through the relationships already in place with Aberdeen Funding.