Client question: Worried About How to Ask for Payment? Here’s How Invoice Factoring Companies Should Work with Your Customers
It’s a common question business owners ask: how do I ask for payment? Whether you’re dealing with a customer whose payment is past due or you’re experiencing gaps in your cash flow due to Net 30, 60, or 90 day invoice terms, it’s a difficult situation. You need cash to run your business (and to grow it!) but you also don’t want to sour a profitable relationship. So how should a business owner ask for payment?
It’s simple: you don’t!
That’s an oversimplification, of course. What we’re getting at here is that, in addition to getting you paid faster for work you’ve already done, invoice factoring companies handle accounts receivable for you. They wait to get paid on your behalf. By taking the work of collecting payment off your plate, you can get back to more profitable activities in your business.
Before we go any further, we should pause for a moment and make sure we’re clear on what invoice factoring is all about (especially if you came to this page from a Google search).
What is invoice factoring?
When a business owner factors invoices, they sell them to a factoring company. The business owner receives cash for the invoice amount, usually less fees, ahead of the payment terms. (Which can be up to 120 days in some cases.) The business owner’s customer, who is responsible for paying the invoice, instead pays the invoice amount to the factoring company according to the original payment terms. Check out our definition of factoring blog post if you want a deeper explanation.
Common Concerns About Customer Involvement
Naturally, many business owners and even financial professionals have concerns about a third party talking to their customer, especially around the sensitive and important subject of payments. Here are some of the reasons we hear most often:
- They worked hard to land a large client and they don’t want to jeopardize the relationship. This is completely understandable. Oftentimes, we talk to business owners who have caught a “big break” by landing a large customer who is a household name. Consequently, the purchase order or project is also big (so big that they need a way to pay for the supplies, contractors, or equipment to get the job done) and introducing a factoring company feels like a risk.
- They’re afraid a factoring company will be aggressive in collecting payment. Unfortunately, some invoice factoring companies will hound your customer until they pay, making the customer feel like they’ve been handed over to collections. It’s easy to see how that would be off-putting to a customer (or anyone, for that matter).
- They’re afraid the customer will think they can’t serve them well because they are factoring invoices. This is one of the most widespread misconceptions out there about invoice factoring. For many large companies, redirecting payment to a factoring company is nothing unusual, and they think nothing of it. The person handling the transaction is often an accounts payable staff member who does this work routinely – not usually the same person who signed the contract.
To alleviate these concerns, we’ve established best practices for working with your customer.
Best Practices for Working with A Client’s Customers
It’s a good idea to ask any factoring company you’re considering whether they follow these practices. Since we at FundThrough also follow these practices, we’ve included a few examples of how they work for us so you can get an idea of what they would look like put into practice with your customer.
Provide easy ways to introduce the factoring company to your customer
For example, our platform enables you to send automated emails to your customer to get the process started once you upload an invoice to factor. We’ve also written up a few ways clients have introduced their new accounts receivable partner if you choose to customize the emails before you send them through the platform.
Minimize needed communication
The only things we (and most any other factoring company) need from your customer are to make sure that the invoice is real and that they will redirect payment to us. It’s a simple, email-based process that only requires their confirmation.
Build positive, transparent relationships
If customers have questions about the process, it’s in everyone’s best interest that they get the help they need. We have a dedicated customer service team that is easy to work with and has experience working with all kinds of accounts payable processes. (This is an important question to ask if you are shopping for a company that will get your invoices paid faster.) In the case of FundThrough, we already have positive relationships with many of the world’s largest buyers; oftentimes they have multiple suppliers who work with us to get their invoices paid faster.
Work with you first before contacting your customer again
Aside from notifying your customer initially of a change in payment details and to confirm your invoice (all of which you control) your customer won’t be contacted unless the invoice is overdue. If the invoice is not paid on time, we will work with you, the supplier, first. Only if we do not receive any updates on payment status, and the invoice becomes significantly overdue will we contact your customer directly.
Finally, any good factoring company will give you options to fund invoices that don’t involve your customer. If you are a QuickBooks user, our Express option allows you to get the funding you need and pay us back with weekly installments that include a small fee.
The bottom line is that any factoring company you’re considering working with – whether it’s us or another organization – needs to understand how important your customer relationships are and act accordingly.