A growing number of small business owners today are turning to factoring to finance their businesses. While at first you may believe that this financial arrangement exists solely between you and your factor, you are now obligated to inform your clients of certain details about this transaction. The only way around this requirement is non-notification factoring, and this processes is difficult to use without going through a large banking institution.
Rather than disclose too much information, however, you can meet this requirement and still keep the relationship between you and your customers intact by revealing these four key facts about factoring. These details can also put your clients' minds at ease and convince them to continue doing business with your company.
1) Factor Is Your New Accounts Receivable Department
When you factor your outstanding invoices, you essentially are agreeing to the factor becoming your new accounts receivables department. Because your factor will take on this role in your company, your clients need to know that they can contact the factor when they:
- Need to request copies of purchase orders
- Remit payments
- Need copies of time sheets
- Need to submit service requests
Rather than contacting your company, your customers should be notified that they must contact your factor for these matters.
2) Factoring Is a Popular Business Finance Method
With the economy continuing to rebound from the recent recession, many banks and traditional lenders are still hesitant to loan money to small business owners. The approval process for a bank loan continues to be tedious, if not impossible altogether for many entrepreneurs.
As such, factoring has become more popular in small business financing. This arrangement lets owners get the cash they need without suffering the stringent and impossibly high lending standards that many banks utilize today. Your clients should understand that this financial choice is indeed one that is gaining popularity in the business arena and in fact is quite normal for entrepreneurs like you to utilize.
3) The Quality of Your Products and Services Is Unchanged
When your clients learn about your factoring transaction, they may worry that your products or services will suffer in quality. You would do well to reassure them that this financing will have no impact on the quality to which they have become accustomed and in fact will give you the cash flow to serve them better.
You can fill your customers' orders faster and also be able to take on bigger orders that may have been impossible for you to consider in the past. You also can maintain the current level of production that has thus far given your business its solid reputation with your client base.
4) Factoring Is a Sign Your Business Is Healthy
As you dole out these details to your customers, you should emphasize the fact that your factor indicates that your business is indeed quite healthy. You are utilizing one of your business' most available assets to secure financing to serve your customers and maintain your cash flow. With factoring, you can likewise maintain your business' viability by using the money to:
- Expand your customer base
- Increase your profile through advertising
- Order new inventory and supplies
- Pay everyday expenses like utilities and payroll
- Increase your profile through advertising
- Order new inventory and supplies
- Pay everyday expenses like utilities and payroll
The fact that you can bring in money through this normal and increasingly popular choice should indicate to your customers that you have the revenue coming in to stay profitable and successful. This important fact should likewise give your customers the confidence to maintain their relationship with you.
When you choose to utilize factoring for your business, you are obligated to inform your clients about this decision. These details can strengthen your ties to your client and give your company the financing it needs to remain successful and relevant.
