![]() Something isn’t always better than nothing. Once a bill goes delinquent, it’s important to carefully follow procedures to increase the likelihood of payment and guard against legal liability. Every company should have an established protocol for collections. Work with your attorneys and CPA to ensure that suing for nonpayment is worth the investment. Business owners often throw good money after bad by attempting to chase down nonpaying clients through the court system. When a late bill becomes bad debt, bear in mind these dangers: For many companies, the 91st day after an invoice has been issued marks the beginning of the dreaded collection process, which typically means letters and phone calls of increasing frequency and urgency.Īfter 120 days, some businesses may attempt to seek a legal remedy, contract with a commission based collection agency or sign on with another third-party firm that buys the debt outright for a low cost. Dealing with Delinquent Debtīanks and factoring firms (see main article) generally won’t buy or loan money against accounts receivable more than 90 days past due. Doing so saved him about 1,000 labor hours annually and enabled him to lower his high-interest credit card payments - all while considerably easing cash flow concerns. As a result, the company’s owner routinely used a high-interestrate credit card to make payroll and spent at least five business days a month chasing down late bills.įinally, the owner sold off about $200,000 of its annual receivables to an online factoring firm. Still, particularly for smaller businesses, selling receivables for upfront cash may be advantageous because it reduces the burden on accounting staff and saves time.įor instance, a small business faced cash flow issues because, increasingly, many of its customers were waiting up to 90 days to pay their bills. What’s more, factoring providers will likely scrutinize the creditworthiness of your customers. Try FactoringĪnother option for businesses looking to ease their cash flow woes is the sale of unpaid - but not yet delinquent - invoices to financial firms specializing in accounts receivable “factoring.” Rather than obtaining a short-term loan for unpaid invoices, factoring allows companies to receive an immediate cash payment through the sale of the receivable to a third party.Ĭosts associated with receivables factoring can be much higher than those for collateral-based loans or other forms of traditional commercial bank financing. #Invoice factoring tampa plusTo secure the loan, the company was required to put up $200,000 in unpaid invoices as collateral and then pay back the loan, plus fees and interest, once customers remitted payments. Looking to prevent this cash flow crunch in the future, the business owner met with a local banker, who was able to extend a $180,000 line of credit at a competitive interest rate. Each financial institution sets its own rates and conditions for these loans, which often depend on criteria such as your:įor example, say a longstanding company with $10 million in annual revenue couldn’t make payroll after two of its biggest clients wait 90 days to pay outstanding invoices. These invoice-financing arrangements may provide immediate loans for a substantial percentage of the value of an outstanding debt and are typically paid back when the customer pays its bill. This form of secured borrowing is typically an ongoing arrangement that allows a company to leverage receivables from the moment they’re issued.īanks and other financial institutions typically charge both fees and interest for securitized receivables, which remain an asset of the borrower. Take Out a LoanĪlong with equipment and property, unpaid invoices can provide banks with collateral for a line of credit. Doing so is far from an ideal first step to remedying slow cash flow, but the strategy may be feasible under some circumstances. When things get really tough, you might want to consider monetizing your receivables. Such situations can make it hard for a company to turn a profit or even keep up with its expenses. Many business owners encounter difficulties obtaining prompt payment from customers. ![]()
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