Invoice factoring is a great way to get quick cash and no longer worry about cash-flow problems. This is because you’ll be able to hire out your invoice collection to a third-party company responsible for tracking down payments while receiving the cash from those invoices upfront. It can help you have some reserves in case of an emergency or grow your small business.
- Not Reading Your Factoring Contract Closely
One of the most common mistakes companies make is simply signing along the dotted line without first going over their factoring contract with a fine-tooth comb. A factoring agreement is a legal document so if you don’t have much experience with legal documents, consider having an expert take a look at it. This is because there can be fees associated with services and penalties you need to know about.
- Not Connecting the Factor with Your Clients
Since working with an invoice factoring company means they’ll need to be in direct contact with your clients to collect outstanding invoices, connecting the two is extremely important. The easiest way to do this is just to explain to your customers that you’re working with an invoice factoring company that will be collecting the payments moving forward and they can expect a call from them, but let them know you’re available should they have any concerns.
- Not Having Your Accounting Department Set Up Properly
One other costly mistake companies often make is not having their accounting department set up properly to track the factoring details. It’s important to make note that factoring will provide you with approximately 80-90% of the overall invoice amount, then when the invoice is paid by the customer, you’ll receive the remaining amount from the factoring company. But it’s important your accounting department keeps close track of such things.
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