There is no doubt that working with a factoring partner will benefit the business. While the arrangements for the invoice factoring look great in general, it pays to delve a little deeper into matters that could impact the company’s customer base. One of those matters is the way that the partner will go about collecting past-due invoices. Here are some points that need to be addressed before the arrangement is finalized.
Understanding the Process Used by the Partner
Part of a factoring arrangement involves turning over collection efforts to the partner. This makes sense because the partner has essentially purchased a batch of invoices and now owns them. Knowing that there is the possibility for some of those invoices to be paid after the standard 30-day mark means some sort of direct contact will be made with the customers.
Ask for specifics about how those contacts are made. Will the partner send a reminder notice that is worded to assume the failure to pay is an oversight? Does the procedure involve making a reminder phone call? What sort of scripting is used for a collection call when the invoice is over 30 days but still under 45 days?
The responses to these questions provide some insight into how customers would respond. If the attempt is more along the lines of assuming the customer forgot to pay or that the invoice never arrived, customers are likely to respond positively and quickly make arrangements to remit the payment. When the approach is more abrupt and demanding at this early stage, the result could be a customer who expedites payment and terminates the relationship with the company.
Charging Back the Invoice
If an invoice does remain unpaid despite collection efforts, the debtor can expect the factoring partner to deduct that amount from the funds provided from future batches of invoices. The partner may determine to never accept another invoice from that one customer. Make sure there is no misunderstanding about how much an invoice must age before this type of action takes place.
Factoring does provide a number of benefits to business owners. When considering this funding approach, go through every detail of the arrangement and ask questions. Doing so ultimately protects the interests of the business owner, the partner, and the customer base.