One of the toughest growing pains for an expanding company is getting a handle on past due accounts without spending more in staffing and training than stands to be collected. Because the cost to train and hire a qualified in-house staff to manage accounts receivables often outweighs the cost of collecting the debt, many companies simply write off their early debt as a loss. However, in today's modern business age where there is a less expensive - and often higher quality outsourcing solution for just about any need, no business of any size need lose a dime for lack of affordable AR resources.
While your first thought might be to contact a general accounts receivable firm, who better to keep on top of bad debts than a collection agency? A collection agency is as motivated to collect on debts as you are because they aren't paid until the debt is collected, unlike a staffing company who is paid for processing time. Further, it is the job of collection agency staff to remain up to date on laws, processes, and the delicate balance of psychology and perseverance needed to keep your debtors paying on time.
When your company works with a collection agency it's like instantly adding an entirely new department to your firm that is fully staffed, properly equipped, and with tried and true systems and strategies. The collection agency will operate under your company's name, sending letters on your company letterhead, making calls under your company name, and forwarding all funds to your company.
Adding an accounts receivable management team by way of outsourcing a collection agency is most beneficial for business with large numbers of credit accounts. Smaller companies with fewer accounts may find it easier to contact a collection agency when individual accounts become delinquent. But for larger companies that need top notch account managers, hiring a collection agency for accounts receivable management is often less expensive than bringing on a full time staff with similar levels of experience.
By outsourcing, companies gain access to top notch collection agency professionals and advanced collection agency resources even if they don't have full time AR management needs. It doesn't take a long roster of past due clients to make a big dent in a company's bottom line. According to statistics, once an account becomes 90 days overdue, your business is likely to receive only 73 cents for every dollar owed. After 6 months, the amount drops to 50 cents on every dollar and down to 25 cents after one year. Bringing a collection agency on to handle accounts receivable addresses delinquent accounts within the first 90 days, before they get out of hand.
A word of caution: the collection agency you choose will be an extension of your company's image. When choosing a collection agency to handle your accounts, make sure that they adhere to a solid code of ethical conduct. Even if your customer has been late on a payment, you won't want an overzealous collection agency treating your customers disrespectfully. Even the best customers hit financial rough patches. A customer behind on a payment today could potentially be your biggest client a year down the road. When choosing a collection agency, be absolutely sure that they are committed to handling your customers with respect while still getting results.
It is not without reason that accounts receivable financing has been consistently gaining popularity. The benefits offered by this type of financing are too good to resist. Using accounts receivable financing improves your companys financial profile and credit rating in the market. Increasing number of companies is resorting to accounts receivable financing to meet the immediate requirement of funds for the further growth of their business.
The many benefits of accounts receivable can be summarized as follows:
Quicker cash flow: Accounts receivable financing gives you the immediate opportunity of converting your credit sales into immediate cash flow for your business. By getting your outstanding invoices or receivables monetized by a commercial financing company, you are able to get your money when you badly need it. You dont need to wait weeks and months to receive your dues from your clients. You gain immediate access to working capital for your business.
Quick funding from a financing company gives you the advantage of an enhanced credit rating by virtue of your having the funds available to make timely payments and occasionally even ahead of schedule. Now that your business has the required capital to operate at hand, there should arise no occasion to seek additional funding like venture capital. Unlike venture capital, funding from factoring companies does not require the relinquishment of your equity in the company so equity will now continue to be with you, the business owner.
Focus on your business: An easy access to a working capital frees up your resources giving you greater peace of mind. As a result you can focus on those activities that are more productive like selling and marketing. The time that you have been spending on collecting payment from your unsympathetic clients can now be devoted to building your business.
More user friendly: All businesses, small, medium or large can opt for accounts receivable financing. Setting up accounts receivable factoring lines does not take more than just a few days. Unlike a conventional bank loan you neither make any payments nor do you create debt. Besides, you have the freedom of financing as much or as little as you want. It is directly related to your sales growth. The greater your sales amount the higher would be your financing line. Factoring companies help you obtain cash discounts for payment of accounts payable early, as well as any other debt.
Additional Services offered: Most financing companies offer to manage your entire accounts receivable portfolio that includes invoice processing, reporting and posting. As a result, you have more time available for revenue-generating activities such as sales and marketing. In many cases the factoring company helps you determine the credit rating of your potential clients before you actually start selling to them.
What they actually do is they check the payment history of your clients before you formally sign them up. This significantly reduces the prospect of bad debt as you start getting better clients with a reliable track record. The chances of financial crises such as bankruptcy or your inability to pay taxes on time are eliminated. All this comes to you as a good bonus because you dont pay any additional fees for such valuable services.
Both Christine Harrell & Ben Needles are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Christine Harrell has sinced written about articles on various topics from Mortgage, Careers and Job Hunting and Personal Desktop. The author is a freelance copywriter. For more information about what a can do for you, visit. Christine Harrell's top article generates over 550000 views. to your Favourites.
Ben Needles has sinced written about articles on various topics from Business Credit Cards, Anger Control and Business Credit Cards. About the Author (text)I recommend using an experienced Accounts Receivable Financing company such as the Phoenix Capital Group. They have a high level of professionalism and have won numerous awards such as Entrepreneur Magazine's Top. Ben Needles's top article generates over 550000 views. to your Favourites.