How to manage debt factoring? 6 helpful tips
In the world of business, debt factoring is an area which requires thorough involvement and constant monitoring. It’s a great way to stabilise and optimise cash flow, but it definitely takes its toll on the company’s resources. Since debt factoring management requires cutting edge solutions and efficient, streamlined management in order to be efficient, you have to do a lot of planning and calculating before such a solution could be implemented and bring in benefits. To help you out, here are six useful tips that should help manage debt factoring for your company!
First things first – what actually is debt factoring?
Debt factoring is a factoring financing service which allows your company to sell its accounts receivable to the factoring company. It takes a cut from the total amount and immediately covers the debt by transferring the money into your company’s bank account. It’s a very quick way to boost cash flow and to stabilise the financials of any company, regardless of size or niche.
Let’s move on to debt factoring management.
No. 1 – have dedicated staff members in-house to oversee it
Since it speeds up the flow of cash, you are definitely going to require additional hands & minds to look after transactions and arrangements. If your company writes out dozens of accounts every month and each of them is paid by the factoring company, there is a lot of work for the accounting and financial staff to do.
If you can dedicate one or two people (at least) to be focused towards debt factoring and look after the related procedures, well that is going to bring instant benefits to your business. Accounting reports and financial data will be ready on-time and the likelihood of mishaps and errors will be reduced to a minimum.
No. 2 – implement and begin using quality factoring software
Factoring software is something that all medium or large business could use. These dedicated apps have built-in and ready features which have worksheet-like functionality for the convenience of your staff. Such software allows for decentralised data management which is a crucial feature to have for the financial and accounting departments of your business.
Since factoring financing is quite a challenging area of business to oversee, even the most experienced and competent staff need to rely on dedicated computerised solutions. Top of the range factoring software is able to automatically generate reports, integrate into the general ledger, allow for delinquent account management and adapt to the ever-changing needs of your business. Besides, some factoring software is tailor-made to provide not only debt factoring solutions, but also be able to manage recourse or non-recourse factoring, if need be.
No. 3 – choose reliable partners and time-tested 3rd party solutions
If your technology solutions can be integrated with 3rd party plugins and external solutions, do so with tremendous care. The integrity and transparency of your financial data is super important. You don’t want buggy or outdated software which could force accountants and financing specialists to struggle, right?
This is why you need to carefully choose software and other dedicated solutions for debt management that have been approved by users and experts. Of course, some offers could try and lure you in with ridiculously low prices, but everyone knows that if a deal is too good to be true, it’s usually not true. Make sure to double check your choices of investment since debt factoring management requires not only dedicated staff members but cutting-edge solutions with a multitude of different features. One of which is Soft4Factoring – a dedicated and versatile software tool for companies that are looking to simplify legal and administrative burdens of factoring and related financial operations.
No. 4 – plan the allocation of new cash right away
It’s rare that a company just sits on the newly acquired cash pile. Due to inflation and the necessity to stay innovative and ahead of the competition, investments into R&D as well as your staff are very important. Thus, every business that makes a debt factoring agreement with a factoring company, should definitely plan ahead and consider what they’re going to do with the newly added cash.
Factoring reduces the amount of time you need to wait before receiving the money for invoices (accounts receivable). So, if the funds come in swiftly, it’s in your company’s best interest to invest it into process optimization or the aforementioned R&D right away.
No. 5 – weigh in alternatives and their benefits
Don’t forget that factoring isn’t the only financial solution out there. You can choose between business loans, credit lines, overdrafts and a variety of other different measures. Each of them brings a lot of different qualities to the table, ensuring that the business has some sort of benefit from choosing that particular service.
When it comes to factoring, this service works best when your largest clients don’t pay accounts right away or when you write out a lot of invoices to numerous customers and aren’t sure about their payment schedules. Factoring will prevent any disruptions in cash flow and will give the business much more breathing room for growth. It allows an enterprise to stick to its plans and continue with the initial business strategy instead of waiting around for the wire transfer to come through.
However, if a serious investment project needs to be undertaken or if your company needs more flexibility for spending, business loans and overdraft seem to be like the better solutions, respectively.
No. 6 – underHow to manage debt factoringstand the power behind debt factoring
Debt factoring is a very powerful financial service. Receiving the funds within a short period of time gives any organisation much more financial stability. Even though a certain percentage is deducted as a factoring fee, the service itself is very useful for a company that has either had repeated issues with cash flow stability or cannot afford to have any delays with payments. Usually, about 80-90% of the account is paid up front, which means that you take somewhat of a significant loss for now, but in the long-run, if managed properly, this can bring amazing growth results.