Tweet

Accounts Receivable Factoring: It’s More Than Just the Money

Written by: Tracy Eden

Article Overview: The concept of "core competency" refers to the things done by a business that lie at the heart of its ability to manufacture a product or deliver a service. From a management standpoint, employees should spend as much time as possible working on tasks that contribute directly to the business's core competencies. Since managing accounts receivable isn't a core competency for most companies, many rely on accounts receivable factoring companies to handle their accounts receivable functions. Read about how one company began factoring its accounts receivable in order to improve cash flow and soon discovered that factoring services offer additional benefits as well.

Accounts Receivable Factoring: It’s More Than Just the Money

The concept of "core competency" refers to the things done by a business that lie at the heart of its ability to manufacture a product or deliver a service. They are strengths relative to other organizations that are not easily imitated and that can be leveraged across different products and markets. From a management standpoint, employees should spend as much time as possible working on tasks that contribute directly to the business's core competencies, and as little time as possible working on tasks that don't. Since managing accounts receivable isn't a core competency for most companies, many rely on accounts receivable factoring companies to handle their accounts receivable functions.

Going Beyond Collections

An Oakville, Ontario distributor of photo luminescent material used in exit signs and safety equipment began factoring their accounts receivable in 2008 in order to improve their cash flow. It soon discovered that factoring services offer additional benefits as well.

"This takes the onus off of our employees to manage accounts receivable," says the company's CEO. "It allows them to spend more time focusing on more important issues, while our factoring service handles all the fine details of our accounts receivable management and keeps everyone on the same page."

In short, factoring services allow the CEO to concentrate on what he does best: growing and developing his business.

This particular distributor was referred to a factoring service by its primary bank. "Since we're an emerging company with a new technology, we're not considered traditional, so banks can be a little hesitant until we've proven ourselves," says the CEO. However, the company was incurring heavy expenses on large volumes of raw materials, and the lengthy payment terms of its customers was creating a significant cash flow crunch.

"We work with municipalities, universities, schools, hospitals and Fortune 500 companies," explains the CEO. "They sometimes take a long time to pay. Because of the significant dollars involved, it made sense for us to take the small hit from factoring in order to keep the cash flowing."

The Importance of Vendor Assurance

Another potential benefit of factoring services is what's sometimes referred to as "vendor assurance." In this company's case, its supplier was being asked to produce large quantities, but was a little uncomfortable since they were dealing with a relatively new company. Through its factoring service's Vendor Assurance program, the supplier was persuaded to provide the product on open account terms.

"This provides a safety net to our key supplier by increasing their confidence," says the CEO. "Vendor Assurance was instrumental in helping establish credit in the first place and increasing our credit as suppliers gain a greater degree of confidence in us."

The CEO also likes the fact that his customers are not aware that their invoices are being financed-a feature known as non-notification. Checks are made out to the company and payments are mailed to a generic post office box. When the accounts receivable clerk from his factoring service calls, he or she identifies him or herself as being with the CEO's own accounts receivable department.

Due to fast growth, the company's needs are constantly evolving, notes the CEO, which makes receiving fast and responsive service critical. "I have recommended factoring services to other companies and will continue to do so. Factoring can be a valuable service to small and emerging companies that have strong potential."

Related Articles
  Recourse and Non-Recourse Nurse Staffing Accounts Receivable Factoring: What’s the Difference?
  Factoring: an alternative way to finance your business
  The Only Disadvantage Of Factoring Receivables And Why Confidential Accounts Receivable Finance Works!
  Factoring in Canada – Receivables Financing
  What Does Accounts Receivable Financing Mean? How does it work in Canada?

Article Tags: accounts receivable factoring, core competency, factoring
Referred by: http://donsadlerwriter.com



Related Forum Posts
In-depth understanding of Cash-flow - Accounts Payable and Receivable can get a lot of businesses in trouble. You really do need to be careful to ensure you don't come unstuck. Having a credit card or overdraft facility can help in these circumstances though.
Re: Which would you start: a Blog or Online Community? - It is a difficult decision to make. Lets start it this way - What are you more interested in? Money? or Friends? or Both? If its purely Money, then Blog might be an appropriate answer. But consider this - It will be people (visitors) that will bring traffic to your blog and then Money will follow. This will be possible after a time and during this time it will be your friends who will be the starters. If you are looking for friends only, then its true that not many will be interested in knowing how you have beaten them in the game or the other way round. So it will be preferable to have a Forum where they can share ideas with you and others. But you can share your insider knowledge with them and invite comments from your Blog. You can also put up information on what others (including your friends) don't know about Tennis. The blog you create can provide News, Inside Information and also Techniques that can be used by the new entrants in the world of Tennis.
Making Money in 2011 - Hello forum members! As we draw closer to the new year I thought it would be appropriate to change the title of our forum category "Making Money in 2010" to "Making Money in 2011" - I'm looking forward to some interesting discussions and wish everyone a prosperous New Year!
QuickBooks vs. Microsoft Money vs....? - I have always used Microsoft Money to run my business - accounting, invoicing, etc. It came with my computer when I got it and integrated well with my online banking system so everything is a breeze. It only takes 30-60 minutes every quarter to do the bookkeeping (keep in mind that I have a very simple business - no inventory, very little invoicing, I do all my payments by credit card, etc). Is QuickBooks or Money the best accounting tool for small business owners? Or is there something even better?
Re: What or Who Sparks Your Business Interest - It's interesting to see what the different motivations are by Age Category. I've noticed this around me: 20 to 29yr olds: Motivator: Money 30 to 39yr olds: Motivator: Success/Ambition 40 to 49yr olds: Motivator: Family comes first 50 to 59yr olds: Motivator: Leaving a legacy i've only gone that far in my analysis. Of course this is a braid generalization but I find that it helps direct my marketing to individuals in different age brackets. The product/service can be the same but the Marketing message (Benefit Statement) to a 20 year will revolve around "Money" vs. a 30-something would be on their "Self Image"


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

10 Reasons Your SBA Loan May Be Declined

Leading from Authenticity is a Beautiful Thing

Track Your Time for Increased Productivity

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.