Entrusting someone else with your customer relationships leaves room for things to go awry. This week, our team speaks candidly about the potential impacts of invoice factoring on your customer relationships and why while you should be careful, you shouldn’t be worried.
A lot can go awry when a small business owner chooses the wrong invoice factoring company. One of the biggest concerns – and for good reason – is that you could lose key customers if the company you contract doesn’t do a good job of managing the relationship with your customers on your behalf. That’s one of the main reasons why some small business owners decide to maintain credit control over their customers, instead of allowing a third party to chase them for payment (freeing up their time for other, more important business activities).
To prevent missteps from ever happening with an invoice factoring company, there are a few proactive steps to take that begin with doing your due diligence. But first, do you know what invoice factoring is?
What Is Invoice Factoring?
Invoice factoring, also known as debt factoring, invoice financing, or asset-based lending is the practice of selling receivables due within 90 days, at a discount, to a third party in exchange for immediate working capital.
3 Misconceptions About Invoice Factoring That May Impact Your Customer Relationships
1. Some customers may question the health of your company and no longer want to do business with you
If you work with larger customers, this will not be a problem because they understand factoring and know how critical it is to cash flow. However, some customers who don’t own businesses may not understand the rationale for using an invoice factoring company. Instead, they may see your action as your company going under and looking for a lifeline.
2. Some customers may view you as losing control of the business
Customers want to know how factoring will impact the quality of service and products they receive. Because the invoice factoring company is collecting your receivables on your behalf, customers who do not understand the factoring process may view the situation as you losing control of your business.
3. Some customers may view invoice factoring firms as debt collectors who will harass them.
It’s about educating your clients and helping to manage their perceptions of factoring companies. Most factoring companies operate in an ethical and reputable manner.
How to Manage the Process of Working with an Invoice Factoring Company
Your customers come first, so choose a factoring company with care. You want to find out things like how long they’ve been in business, customer complaints and commendations, ethical business practices, and do their values align with yours? Do your due diligence before you make a choice.
Communicate with your customers so they know what’s going on in your business. Misconceptions about invoice factoring are extremely common. In some cases, the easiest thing you can do to maintain your customer relationships is to simply explain why you’ve decided to use a factoring company and what it means for them. Tell them the name of the factoring company you’ll be using. Do this before the factoring company sends a notice to them. Alert customers to impending changes by sending out a newsletter, having an open house, or by hosting a virtual “town hall” meeting so customers can tell you what’s on their minds.
If you’re looking at dipping your toes into the world of invoice factoring and feeling a little overwhelmed right now – don’t worry. FundThrough is a modern take on traditional factoring that allows you to retain control over your business and cash flow with a suite of flexible invoice financing options that are designed to work regardless of whether you’re a new business that wants to maintain complete control over your accounts receivable process, or a large company looking for someone to do the waiting for you.