This has been made more difficult by customers with sluggish transaction habits and an economy that continues to have much uncertainty and hesitancies brought on by an undetermined election year.
Unfortunately, there is often nothing that can be done about slow-paying customers.
Your terms allow most invoiced companies a certain amount of time in which to process and submit payment. As long as the transaction is completed within this time-frame, there are no legal means to expedite the process.
Whether you handle machinery, components, electronics, software, etc., factoring is a straight-forward way to access your cash. Imagine that you are used to dealing with a customer who is reliable but always takes a long time to pay invoices. You do not want to alienate or lose them, but you need the cash flow.
This is why many distribution companies are turning to invoice factoring and purchase-order financing through alternative financing companies. The money from goods sold can be in the distributor’s hands in days, instead of taking up to a few months to arrive. The Factor can almost seamlessly take on the responsibility of the Accounts Receivable Management, so the distributor can focus on its core competency, and the responsibility of the administrative process is placed with the factoring company.
So what’s in in for the factoring company you ask? A factoring agent does make a profit by taking an agreed percentage from the invoice total. If you enter into a factoring arrangement, the exact percentage should always be clearly approved, by you and the factoring agent, before any contracts are signed. All fees should be outlined up-front so there are no surprises and there should be flexible terms in the agreement.
Once entered into the agreement, the Factor takes on the administrative process. The Distributor gets their cash almost immediately, freeing up cash flow to take larger orders.
When it comes to choosing a factoring company for a distribution company, the key should be flexibility. Once again, this is a complex industry and the market can change very quickly with little warning. So, it is essential for your factoring agent to be willing to work for your company’s best interest so you can help run your distribution network smoothly.