First, and most obvious, is to sit on a solid cash reserve. This ensures that there are no cash flow deficiencies, and provides the ability to wait for payment. Sounds simple enough but in reality this is a luxurious position to be in. Not all businesses can build up that cash cushion and even the ones that can have to work hard to maintain it.

Another common strategy is to step-up collections efforts. For small operations this means the owner takes time out of their busy schedule to review their aging report and make phone calls on past due invoices. For larger operations a collections specialist might be needed. This can be done in-house or through a third party.

This can be an effective way to expedite payment and improve cash flows; however it comes at a cost. For small operations, this cost usually in the form of precious time. For a full-time collections specialist the cost is in the form of a salary.

Another effective way for repo agents to manage cash flow is to use an accounts receivables factor. A factor will advance payment on the invoice so that cash is available immediately. The factor will then handle the collections on the invoice as well as key accounting functions. This provides a much improved cash flow position as well as outsourcing key duties to the factor.

Factoring comes at a cost as well. The factor makes money by purchasing the invoices at a discount.  It ranges from 3-5% of the face value of an invoice. At this rate, it is much more expensive than other forms of financing. However, for most recovery companies it makes more sense to factor then bring an in-house collections agent. Only the repo companies with the highest sales volumes have factoring fees that are more per year than a salary. As well, factoring improves cash flows much more substantially because payment is comes in 30 days earlier.

Factoring is also a great avenue for recovery agents to get financing when other sources are not available to them. For all factoring arrangements, the factor is most concerned with the credit-worthiness of their client’s customers. This means even the smallest recovery agent can get funding based on the credit of big finance companies.

Factoring: Working Capital for Repossessors is a post from: Factor Direct Capital

What I mean when I say “dependable money” is that factoring allows a business owner to know exactly when payment will come in.

Even with the most creditworthy, dependable customers, payment on a particular invoice typically has about a week of ‘wiggle room’ in actually receiving payment. It could come a few days early, it could come a few days late, and there is no way to know exactly when payment will come.  With customers that are less dependable, organized or prompt, this could turn into a few weeks or months of ‘wiggle room.’

Businesses should be prepared for this to some degree; it’s the nature of 30 day payment terms, but there are situations where the money needs to be there. Starting a new project, making payroll, loan payments, due taxes, rent, expanding business; the list goes on, but the point is that in all these situations the business needs to have the money in-hand and ready to go. This is easy when the business has plenty of cash but when money gets tight, fulfilling obligations can get stressful. Rather than hoping to get paid in time to meet payroll or rent, factoring can provide the assurance that money will be there when it is needed.

Money You Can Count On is a post from: Factor Direct Capital