Explaining Your Decision to Use Factoring to Customers
Once you have decided to use factoring for your cash-flow needs, one of the most important things you will have to do is communicate with your customers. Once you have turned over your invoices to a factoring company, your customers will receive a document called a Notice of Assignment indicating you have turned over the collection of their invoices to the factor.
It is important to ensure you have addressed this prior to this notification being received; and ensure that your customers questions are answered. Some of the common concerns your customers may have include:
Will this impact the quality of service and products I receive?
It is important to let your customers know that outside of invoicing, your relationship will not change. You will still be providing the highest level of quality products and services. Remember, customers want to be assured their business is not impacted by your decision. The more you can do to assure customers that most things will not change, the more likely they are to be comfortable.
Is your financial status in question?
Make sure your customers understand that your decision to factor is designed to improve your finances. Improved cash flow means more access to materials, ability to hire new staff for upscaling, and ability to pay your bills on time. Remind them that factoring is not a loan, that you are not taking on additional debt, and discuss the benefit of not having to track down payments; factoring allows you to continue offering the same terms they currently enjoy, versus cash and carry.
What changes does this make to my billing?
Your customers should be aware they will get their invoices from the factoring company, and they should remit payment to the address on the invoices. Explain to them the factoring company is merely taking over the function of accounts receivable management; this will help put them at ease. Customers will still contact you directly for new products, or services.
Offering Understanding of Factoring Benefits
Chances are, if you are a small, or medium-sized business involved in an industry unfamiliar with factoring, you may be asked about the benefits of factoring. There are some simple ways to educate your customers about these benefits including:
- Ability to grow business— because you do not have to worry about waiting 30 to 90 days to receive payment, you are able to go after additional contracts and still offer payment terms to customers.
- Regular cash flow— because you do not have to wait for payment from customers, you have cash when you need it. This means your suppliers are being paid, your employees are being paid, and you can meet your obligations without going into debt.
- Freeing internal resources— when an external company is handling your accounts receivable, your internal staff is freed up to handle other tasks. This may include customer service, marketing, or help with research and development. This is a bonus; freeing up internal resources also means lower overhead; you need not hire additional staff members to handle tasks.
After Factoring Begins
Once you have addressed the initial concerns of your clients, it is important to let them know how payments will be made going forward. Ask if there are any documents they require from you to ensure the process goes smoothly. Address any concerns about changes in due dates, or other concerns they may have. Should any questions arise you are unable to answer, contact your account manager at the factoring company.
Keep in mind, you will still be in contact with your customers for many issues, including new orders, service needs, etc. Make sure they understand ahead of time, that billing issues, payment issues, or any issue related to payment or invoices should be directed to the factoring company.
Should You Change Methods
Just as is the case when you start factoring, if you should decide to end your relationship with a factoring company, it is important you speak with your customers. Any change in how they receive, question, or pay their invoices must be communicated to your customers.
Factoring your invoices can result in new growth, and a more stable cash flow you’re your business. If you have questions about factoring, or how it can work for your company, we encourage you to contact Capstone Capital Group today at (212) 755-3636. We are here to help you grow your business to its full potential.