The Slow-Paying Customers Catch-22: How Invoice Factoring Can Help

This ho-hum economy has led to the rise of the dreaded slow-paying customer and the all-too-familiar dilemma of how to collect debt from customers without the associated awkwardness. Slow-paying customers can lead to cash flow troubles if not monitored and handled properly. Because they have less leverage and generally smaller reserve funds, small businesses are hit harder by this payment dearth.

If cash flow becomes an issue, it can cause a chain reaction and before you know it you are unable to pay your own vendors, cover payroll or make new purchases.

Account Receivable Financing: An Alternative to Traditional Banks

Though customary bank loans are harder to come by, there is plenty of viable cash flow financing options out there. A lesser known choice is Account receivables factoring or invoice factoring where a factoring company buys your invoices for up to 96% of their value giving you the cash you need right away to cover expenses.

Factoring invoices is a common practice in Europe and in some industries like manufacturing. It is fast becoming popular in the U.S. because it’s a practical way to get large amounts of cash quickly in fair, easy to read terms. Similarly, you can get cash from working capital funding or business financing even if you don’t have collateral to put down.

Get Educated about Cash Flow Financing Options Like Invoice Factoring

Even still, if you aren’t in need of cash for your business right now, it can be smart to learn about invoice factoring options in case you find yourself in a cash crunch down the line. Though some customers may pay late out of oversight, others are going through their own cash flow financing issues because they are collecting from their vendors late.

And so goes the cycle of late-paying customers and cash flow shortage. As such, there is a likelihood you may go through a cash flow issue and if this does happen, the time to learn about your cash flow financing options is before you’re in dire straits.

Be Proactive and Get a Rein on Slow Paying Customers

A special in the New York Times small business talks at length about cash flow issues and how getting creative and resourceful can help with slow-paying customers. Tips, like checking a new customer’s credit, double-checking an invoice for accuracy, and following up, can work wonders. Instead of waiting until the customer is 30 days late, why not assign a friendly yet firm customer service person (if not yourself) to call this customer and remind them after 10 days? Negotiation is the key to getting paid on time.