What Additional Services Does An Invoice Factor Provide?
The primary service is, of course, factoring. Factors are in the service industry and, in addition to their main job, they also provide several extra services that can be highly beneficial to your business. So make sure to find out what else the factor can do for you besides factoring your invoices. Some of these services include:
Checking customer creditworthiness
In invoice factoring, the most important thing is customer creditworthiness. Unless your customer is creditworthy, you cannot factor your invoices. This is equally important for the factor that will also run a credit check on the client so that the transaction goes smoothly. Therefore, the moment you decide to work with a factor, his first activity will be to assess whether the invoices you want to factor are a good credit risk. This may be done over the Internet through online credit bureaus. A quick check is possible through a credit report, based on which, the factor can decide whether to process the invoice or not.
Throughout your business relationship with the factor, a credit check will be carried out on each customer whose invoice you want to factor. This is a big advantage to you and the factor. We already know that the factor will decide whether to factor or not based on his findings. For you, as a business, if it happens to be a new customer, you get a total customer assessment where you can decide on the following:
- Should you factor this customer’s invoices?
- Should you insist on cash on delivery?
- Should you have business dealings with this customer at all?
You will thank the factor for providing you with this service because it can save you a lot of stress and money. In addition, if this is the first time you are using invoice factoring, you will find this service invaluable. You will not have to struggle with annoying customers who make false promises about payments.
Factors protect themselves and your business through various measures. They will check to see, each time, whether the invoices submitted are valid, and whether the customer is likely to pay on time. Verification is done via phone, fax, or other methods that assure your factor that the customer is satisfied with your business’ products or services and will pay on time. This helps by keeping invoice disputes to a minimum so that both you and your factor can rest easy about the payments due. This also gives you customer feedback, giving you the opportunity to provide better service. The customer, in turn, feels happy that you care.
Another valuable service provided by most factors is invoice or accounts receivables management on your behalf. They will save you a tremendous amount of time by generating your invoices for you, mailing them on your behalf, and even taking care of the postage. This activity, alone, can save your business a lot of time and money that you can use on other priority tasks.
You will be surprised to find that some factors will offer you this service free of charge. If the volume of work is large, they may still do it at a cost that will be far lower than what you would be spending on it, if you were to do it yourself. If you are the kind of business owner who prefers your own office to handle your billing, then that is also acceptable.
Following up with very old payments
The worst task for any business owner is to spend valuable time chasing after customers who owe money from a very long time ago. Factors offer to do this as part of their services. They find out what the status of your overdue accounts receivables is and keep track of it, collecting it eventually. The factor keeps a strict watch on a customer’s aging reports and ensures that they follow up periodically as part of their jobs. As a result, you, the business owner, will have fewer and fewer overdue payments.
Of course, if you prefer, you can also keep in touch with these overdue payments yourself. Some factors may offer to handle the entire thing for you, while some will be happy enough to let the business handle it on their own. In many cases, both the business and the factor make coordinated efforts to speed up these overdue payments.
Thus, as you scout around for a factor, get an idea about their services related to old, overdue payments. Based on their response, you can decide whether you want the factor to handle it or whether you will be better off taking care of it without the factor’s involvement.
Who will receive the actual payment from the customer against the factored invoices when the customer makes the payment? Most factors will want the customers to dispatch the checks against the factored invoices to an address to which only the factor has access. This could be the factor’s business address, a post office box, or wherever the factor prefers. In such situations, your customers must be made aware that they must send the payments to the factor’s address.
The standard practice with most factors is that the payment must be made in their name. Some add the name of the business for which they are factoring the invoices, preceded by ‘FBO’ or ‘For the Benefit Of’, so that they can easily keep track of whose invoices are being paid. Yet another procedure involves the payment being made in your name, but being sent to the factor’s address.