Charter Capital

Tag: Unpaid Invoices

  • 6 Ways to Compare Factoring Companies & Find the Best One

    6 Ways to Compare Factoring Companies & Find the Best One

    Comparing factoring companies

    Getting ready to compare factoring companies? As with any financial product, it’s essential to become familiar with factoring and how terms differ from one provider to the next. Below, we’ll break down some of the most-asked questions people have when comparing factoring companies, areas to explore with each factoring company, and traits to look for as you make a decision.

    Getting Started

    Factoring can give your business an immediate cash injection by tapping into your unpaid B2B invoices.  Often thought of as a type of accounts receivable financing, invoice factoring differs in that you’re not taking out a business loan, but rather, are essentially selling your unpaid invoices to the factoring company at a discount. After the factoring company pays you, they assume responsibility for collecting payment from your customer. That in mind, you can think of it as a no-debt cash flow solution intended to help with your organization’s short-term needs.

    Do banks do factoring?

    Banks offer accounts receivable financing, but they don’t generally offer invoice factoring services. Instead, they usually provide loans that leverage the invoices as collateral. You’re still responsible for chasing your invoices and you’ll pay the bank back over time with installments that include interest.

    Can you have more than one factoring company?

    You can only work with one factoring company at a time. The reason is fairly obvious—if multiple companies wind up giving you funds for the same invoice, untangling who gets paid would be a mess. This aspect is governed by the Uniform Commercial Code (UCC) which stipulates that a factoring company must file a UCC-1 financing statement when you enter into an agreement with them. The form essentially says that, as a financial institution, your factoring company has an interest in your “property,” which, in this case, is your invoices. It prevents other financial institutions from claiming rights to them. If you decide to switch factoring companies somewhere down the road, you can, but the new company needs to coordinate with you and your old company and file a new UCC-1.

    Compare Each Factoring Company as a Business

    Before breaking down the packages you’re being offered, evaluate each factoring company on the whole. Make note of details that distinguish the company, itself, from competitors, and whether they lead the pack with customer-friendly practices.

     1. How long has the factoring company been in business?

    Companies that stand the test of time usually have good track records for success and provide better factoring services. This is essential for you and for your customers, as the factoring company will become the face of your business in terms of collections. Reputable factoring companies have a long-standing history and proven track records, ensuring reliable service for your business.

     2. Does the factor have clients in your industry?

    Industry-specific expertise can ensure you’re getting a financial product that’s tailor-made for your niche and that the company understands your unique concerns. Oftentimes, invoice factoring companies specialize in a few key areas and build comprehensive solutions to serve that niche.

    Industries like oil and gas have unique financial needs due to long payment cycles and substantial operational costs. Choosing a factoring company that offers oilfield factoring can provide specialized services tailored to these challenges. Such companies understand the intricacies of the oil and gas sector and offer solutions that improve cash flow, allowing your business to thrive even amidst industry-specific hurdles.

    For example, one area Charter Capital specializes in is trucking and freight factoring. It means our representatives understand what carriers and freight brokers need, common payment terms in the industry, and provide other helpful services, such as fuel cards. There are unique features and benefits for each industry we support.

    3. Can they handle your sales volume?

    Factoring companies come in all sizes. Some may not have the ability to support your needs and you don’t want to find that out when you’re struggling with a cash flow issue and counting on your factoring company to come through. It’s also worth noting that you’ll generally pay less the more you factor, so selecting a company that can handle your sales volume can help ensure your costs stay low too.

     4. Does the factor require minimum factoring fees?

    Some companies tie you in with monthly minimums. For example, they may stipulate that you pay a certain amount each month regardless of whether you factor, or they may require you provide them with a certain volume each month. Small-business owners may look at these terms and think they’re doable, only to find their cash flow issues are reduced down the line and wind up paying for services they don’t really need.

     5. Does the factor require a long-term commitment?

    Don’t sign onto long-term contracts unless you really need to. As mentioned above, you may not need to factor for an extended period of time. Lots of businesses factor just to get through a seasonal lull, to get through an economic crunch, or to deal with an unexpected issue. Work with a company that lets you factor only the invoices you need to factor when you need to factor them. 

     6. Are the factor’s advance and fee structure competitive?

    Get a general idea of advance rates and fee structures to ensure the company is competitive as a whole. For example, you’ll typically see advance rates ranging from 70 to 90 percent the invoice value and fees between one and five percent of the invoice value.

    Pick the Best Factoring Company by Comparing Key Features

    Once you evaluate factoring companies, you’ll want to take a look into the specifics of the package or product each of your leading choices offers. The best factoring company for your needs is likely to stand out.

    Recourse vs non-recourse

    Find out who is responsible if a customer doesn’t pay their invoice. Your factoring company will examine your customer’s creditworthiness, and thus likelihood of paying, prior to agreeing to factor an invoice, so non-payment is rare. However, in the event someone does skip a bill or go bankrupt, you’re ultimately responsible for their debt with recourse factoring. With non-recourse factoring, the factoring company assumes responsibility for the debt, though it’s usually in exchange for higher fees and/ or reduced advance rates.

    Flexibility

    Watch out for minimums and long-term contracts. Factoring is generally thought of as a short-term solution. Although large well-established companies may use it from time to time to avoid taking on debt while sorting out a cash flow issue, it’s more often leveraged by small and midsize businesses that eventually solve their cash flow issues or move onto bank-supplied solutions like lines of credit and term loans. If you’re tied into a minimum or a long-term contract, you could be forced to keep paying even when the model no longer suits your needs.

    Factoring fees

    Get an estimate to determine your actual rates so you can do a proper comparison. A lot of companies say they offer factoring fees of two percent or less, but your actual factoring fees will depend on a number of things, such as volume and the creditworthiness of your clients. You may not qualify for two percent even if its advertised. The same is true of advance rates.

    Funding time

    Find out how quickly you’ll get your cash and if there are additional fees for expedited service. Whereas some factoring companies offer same-day funding, others can take several days to a week or more.

    Perks and value-added services

    Explore what other benefits you qualify for by partnering with a company. As mentioned earlier, fuel advances are one way Charter Capital helps our trucking and freight clients. We also provide perks like free credit checks on your customers, 24/7 account access, and a dedicated account manager for clients in every industry, as well as other industry-specific perks.

    Get a Free Rate Quote

    As a leading recourse factoring company, Charter Capital provides competitive rates, flexible funding, same-day payment, and a wealth of perks, all with no long-term contracts. Explore how Charter Capital can help your business with a free rate quote.

  • Unpaid Invoices: How Do You Ensure Your Clients Pay On Time?

    Unpaid Invoices: How Do You Ensure Your Clients Pay On Time?

    Unpaid invoices

    If you’re worried your clients won’t pay their unpaid invoices due to COVID-19 and the residual economic ripples, you’re not alone. In an era where 55 percent of “temporary” small business closures have become permanent, according to Business Insider, and business bankruptcies are skyrocketing 26 percent per Wall Street Journal reports, it’s clear businesses are struggling with cash flow problems.

    Banks and financing companies are all too aware of this. Sometime around April, roughly one in four consumers saw their credit card limits slashed, or accounts closed unexpectedly, according to LendingTree. The Federal Reserve’s most recent survey paints a grim picture too, saying banks are raising the requirements to get loans; better credit and increased collateral are the new standards. “Major net shares of banks that reported reasons for tightening lending standards or terms cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk as important reasons for doing so,” the report reads.

    Your Clients May Leave You with Unpaid Invoices

    The risk that comes with being unable to collect on unpaid invoices is real. Seemingly solid, good-paying companies are turning delinquent overnight, and if you’re invoicing clients after you’ve provided them with services or goods, you are extending them credit too, though typically not with the same protections banks and financing companies secure for themselves. Preliminary findings from the B2B AI platform Sidetrade show a 23 percent hike in delinquency in the U.K., 52 percent in France, and more than 80 percent in Italy. Numbers for the U.S. have not been released, but unofficial reports indicate the problem is growing across America too. Analysts at McKinsey predict delinquency may grow to three times its current levels by 2022.

    Can Your Outstanding Invoices be a Tax Deductible?

    Sometimes people hope their outstanding invoices will help them out, come tax time. Companies that practice accrual accounting, meaning they record expenses and revenue when the transaction occurs, can usually deduct overdue invoices as a bad expense when they file the next year. However, businesses that use a cash-basis method, meaning they log expenses and revenue when cash changes hands, cannot deduct them from taxes since the payment was never recorded as part of their income to begin with.

    Should You Continue Working for a Non-Paying Client?

    When someone owes you a balance, and they’re not making good on it, it’s ill-advised to continue working for them. However, when the balance is paid, it’s a matter of personal choice. Just be sure to address the loopholes that enabled them to become delinquent before resuming work.

    The Legal Route: Is Court a Viable Option for Unpaid Invoices?

    Naturally, most businesses try to work with a delinquent payer through debt collectors before taking legal action. However, collection agencies can only do so much. So, when it becomes clear the money isn’t likely to materialize, businesses may have little choice but to retain a lawyer.

    Determine if going to court is worthwhile.

    In the initial stages, an attorney may be able to send a demand letter on your behalf to someone that owes your business money in order to get the wheels turning. That can help if the customer is prioritizing payments and struggling, though it’s rarely worth the expense if the invoice amount is lower. Going to court can also work too, but most states set a minimum for small claims court—typically around $2,000—so it’s not normally suited to smaller invoices.

    Apply New Strategies for Non-Paying Customers

    Keeping your emotions in check and maintaining good records are practices to continue, but you can reduce the risk of delinquency and maintain strong business relationships by exploring new strategies too.

    1. Make sure you followed the procedure and then follow up politely.

     Literally every business is in crisis these days and emotions are running high. Particularly as businesses cope with shifting priorities, it’s easy to overlook an invoice. It would be understandable if someone on your team made an invoicing error too. If you notice an account has become delinquent, take a look through their history to ensure all billing protocol was followed on your end. Then, reach out to the customer with a gentle reminder or nudge to let them know they’re overdue.

    2. Give discounts on unpaid invoices and charge a penalty.

    Discounts on unpaid bills are a positive way to motivate people to pay their invoices on time or early. A reasonable late fee or interest fee is acceptable too. Be sure your policies clearly state that you’ll be doing this and include mentions of it on your invoices as well as on any billing correspondence.

    3. Abandon the stiff business approach.

    Ensuring “continuity and compassion in customer assistance” are paramount going forward, say McKinsey analysts. They anticipate customer service needs growing and recommend increasing customer service channels as well as customer care associates to keep things running smoothly. However, you may want to consider giving more flexibility than normal. For example, if you have a great client who has always been a good payer and they’re a bit late, it’s ok to waive their fee to maintain the relationship. You may also want to explore things like extended payment terms or a more flexible payment plan if you can afford to do so.

    4. Consider collections, arbitration, mediation, and court.

    The legal system is still a viable option for delinquent payers but bear in mind the courts are inundated with issues surrounding late payments courtesy of COVID-19’s ripple effect. It may be better to save this as a final step after all other options have been exhausted.

     5. Get Started with Invoice Factoring to Solve Cash Flow Issues

    An invoice factoring service can free you from the entire collections process and give you the working capital you need right now. It involves selling your overdue invoices to a factoring company. Each works differently, but you can generally expect a lump sum upfront that covers most of the outstanding balance. From there, the factoring company handles the collection process and sends you any remaining cash minus a nominal fee when the customer pays. Factoring companies look into the creditworthiness of the customers before accepting unpaid invoices, which provides assurance they’ll pay.

    Get Started with Invoice Factoring

    For more than 20 years, Charter Capital has been helping businesses grow stronger through invoice factoring. With same-day funding, low rates, and flexible terms that allow you to factor on an as-needed basis, we can help you too. Get started with a complimentary invoice factoring rate quote.