Factoring Companies: A Cutting-Edge Credit Management, Even to Big Suppliers
Many big suppliers to small and medium sized enterprises (SME’s) are finding that their ‘debtor days’ are blowing out in today’s challenging market. The SME’s who purchase their materials are taking longer to pay which ultimately hurts the money flow on the supplier as they have more effective utilization of the funds which are tied up of these debtors.
One strategy that the credit teams of these big suppliers are starting to deploy is referring these SME customers to the advantages of invoice factoring companies. Factoring refers back to the sale and purchase of accounts receivable for the purpose of accelerating cash flow. The key reason why big suppliers are using this strategy is because a top reason why a SME debtor is slow in paying is because they have not been paid for a job that they have done. When this job was done for another large company, then the invoice that is generated becomes a valuable asset that can be monetized by financiers who offer factoring.
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An SME business can sometimes acquire cash that they can use to pay their account with the big supplier through factoring their invoices. This helps the SME stick to good terms so that they cancarry on and buy materials on credit terms and of course helps the money flow and collections of the big supplier.
Using this strategy is also a way of determining whether a SME debtor is being truthful when they claim that they have not paid their account as a result of slow payment from their customer(s). If the SME has not then followed up by exploring factoring, then this large supplier knows that there may be another reason why they aren’t paying their invoices and can then take the appropriate action according to their credit management strategy.
For credit professionals, an important Key Performance Indicator (KPI) would be to manage your debtor days well. In today’s challenging economic environment, credit professionals need all the tools designed to help reduce these debtor days and improve the cash flow of their companies.
For details about factoring companies, call The Interface Financial Group (IFG) at 1300 957 900.