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Factoring Your Customers’ Invoices

Business planningMany businesses are concerned that their customers will become upset when they learn that their invoices have been sold to an invoice factoring company. But in almost all situations, all it takes is a short explanation as to why the business has decided to factor its invoices in order to appease possible customer fears.

The following are some FAQs businesses ask before deciding to factor their invoices for the first time, along with our answers:

Q: Will our customers understand what invoice factoring is, and why we have chosen to sell their outstanding invoices to a factoring company?
A: Invoice factoring should be portrayed in a positive light to the customers of any business that sells its invoices to an invoice factoring company. Why? Because invoice factoring is, in fact, a very positive thing. Invoice factoring allows a business to quickly obtain the capital they need to keep their business growing and expanding. Invoice factoring simply speeds up the process by which the business receives money on invoices that have not yet been paid.

Q: Will our customers immediately think that our company is either struggling or failing if we suddenly decide to sell their invoices to a factoring company?
A: Most of a business’s customers have probably already heard of invoice factoring, so they are not likely to form a negative opinion. Invoice factoring is common and known to be a useful and beneficial option for everyone involved. If a customer does not understand the concept of invoice factoring, a simple explanation as to why the business decided to sell its outstanding invoices is sufficient in almost every situation.

Q: When customers learn that their invoices have been factored, will they decide they don’t want to pursue working with our business any longer?
A: This almost never happens. The truth is, customers of a business are probably used to their invoices being factored by many of their other business partners. Therefore, they are probably already aware of the practice, why it’s beneficial, and how the process works. Once customers become aware that factoring is a financing source, they appreciate your enhanced ability to fulfill their orders.

Q: Our business is concerned that it will acquire a poor reputation in the industry once competitors find out we have sold our outstanding invoices to an invoice factoring company.
A: Similar to the answer above, most businesses in a wide range of industries are aware of the overall concept of invoice factoring – including how and why it’s used as a positive business tactic. In fact, many competitors probably also factor their invoices – or have at least considered it. Invoice factoring is seen as a very positive and smart method for quickly, efficiently and easily obtaining the amount due on outstanding invoices. With cash in hand, the money raised by selling invoices to a factoring company can be used to effectively grow and expand a business – which is viewed as a smart financial move – not a negative one.

Confused, young businessman looking at question markQ: Is invoice factoring a last resort for weak businesses?
A: Absolutely not. In fact most invoice factoring companies will not work with businesses that are on the verge of going out of business. Invoice factoring is not a tactic that is used to “save” a company that virtually has no chance of survival. While some businesses that opt for selling their outstanding invoices to a factoring company are in a position in which immediate cash would be very beneficial to them, invoice factoring is often utilized as a positive and effective long-term financial strategy.

Q: How will our customers find out that we have sold their invoices to an invoice factoring company?
A: Normally, an invoice factoring company will mail a personalized letter to each of a business’s customers that lets them know they have hired a company to help manage their accounts receivables. The letter will contain additional information as well as instructions on where invoice payments should be mailed. If a business’s customers have any questions or concerns, they can elect to ask as many questions as they want. It’s the goal of the invoice factoring company to make sure that customers feel reassured and comfortable with the situation.

Editor’s Note: Greg Curtiss is President of The Invoice Bankers. Mr. Curtiss previously was a lawyer and has passed the CPA exam. He has been in business for over 25 years. You can reach him by calling 303-740-7600 or 1-888-740-1750.