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• 13 Jul

  How To Tell If Your Customer Needs Factoring

  

  There are a number of ways to tell if your customer needs factoring. The purpose of a factoring facility is to alleviate cash flow problems within a business. These occur when the company does not hold, or receive sufficient cash in order to settle its creditors in a timely fashion. Any evidence of cash flow pressures, can suggest that factoring may be beneficial to the company.

  How Factoring Improves Cash Flow

  Factoring works by releasing cash against unpaid sales invoices that have been issued to your customers (also called debtors). It also provides a credit control service to chase up unpaid invoices. This type of professional credit control can improve the speed with which invoices are paid.

  How To Tell If Your Customer Needs Factoring

  The first and most obvious way to tell that your customer needs factoring is that you experience a slowdown in their payment of outstanding invoices owed to you. You may notice that the debt turn is extending (the speed with which debts are paid), as they are taking more time to settle their account. Perhaps they may have asked you to extend their credit terms, seeking longer payment terms from you, which could also indicate that they are experiencing cash flow problems.

  Often when chased for an invoice, a customer will tell you that they are waiting for other payments to be received before they're able to settle your invoices. If this is the case, then this is another indication of cash flow problems.

  Monitoring Financial Performance

  It is also possible that you may hear of a customer's cash flow problems from other suppliers within your industry sector. We have set up alerts on Google for all the businesses that we deals with. We get an email alert if anything is published about them online, via Google. This is a free service. Although you cannot guarantee information received from a third party, it may be a precursor to seeing your own payments slow down.

  There are a number of other sources of information that can be helpful. Firstly, there are a number of different customer management and credit reference systems that allow you to monitor the financial situation of your customers. In some cases, these also include information about how quickly they are paying other suppliers.

  The other aspect that some of these systems monitor is the company's financial position. If their credit burden starts to exceed their liquidity, i.e. available cash and other assets that can be easily turned into cash, this can be a precursor to cash flow issues. Even if you don't want to spend money on credit monitoring systems, Companies House provides free access to financial accounts, which you can monitor in order to identify similar deteriorations. If you read my article is about analysing financial accounts, you will see some pointers as to the way to look for financial deterioration in a business. Companies House offer a service whereby you can receive email alerts if there are new financial results found for your customers, or any other business for that matter.

  Introducing Customers For Factoring

  If you have identified that a customer may have cash flow issues, or are taking longer to pay you, you could consider referring that company to an organisation such as ourselves, that deal with the provision of factoring services. Like many other companies within the sector, we can even reward introductions via a commission scheme, which could be a further benefit to your business. For more information please contact us on 03330 113622 if you have customers that may be in need of factoring.

  By Glenn Blackman