Common Mistakes to Avoid with Invoice Factoring

Common Mistakes to Avoid with Invoice Factoring

by Justin Gordon, SVP Sales & Marketing

Invoice factoring is a powerful and targeted solution for businesses contending with the delay between selling products or services and receiving payment. What is factoring, exactly? The term invoice factoring refers to an arrangement where a business exchanges existing, unpaid invoices with a financial institution, receiving a line of credit in return.

Invoice factoring is uniquely suited to helping small companies just like yours avoid cash flow crunches caused by delayed payment on invoices. However, just as with any financial arrangement – whether it’s a major loan or a company credit card used for small incidentals – there are certain best practices to keep in mind. Keep these common invoice factoring mistakes in mind to make sure you get the most out of this valuable offering.

Invoice factoring mistakes to watch out for

 

Lack of strong accounting control

Small-business owners have a lot on their plate, often wearing many hats and handling critical aspects of running the company by themselves. Your current approach to managing and tracking invoices, whether handled by you or an employee, may work perfectly for your individual needs as a business. When you partner with a financial institution, you need to be sure certain aspects of your accounting practices in general and accounts receivable workflows in particular are efficient and error free.

One of the most significant errors that can occur in an invoice factoring relationship is the submission of duplicate invoices due to confusion or a lack of oversight. This can erode the positive relationship you’ve built with your lender and, in some cases, even disqualify you from further participation in an invoice factoring agreement. Similarly, accepting a payment from a client directly when the invoice has already been passed along to your partner can quickly lead to problems. Make sure you provide updated payment information to clients and quickly pass along any you receive to your factoring partner.

Using the wrong document at wrong time – or sending it to the wrong person

Invoices and purchase orders are similar, but have a major difference between them that is glaring in the context of invoice factoring. Purchase orders represent an order not yet fulfilled, meaning no payment is expected or due. Although they represent an earlier step in the process, they aren’t actionable from a collections perspective and can’t be used in place of the invoice. That goes for other documents, like contracts and similar agreements, which indicate an intent or commitment but not the actual delivery of goods or services, as well.

Sending an invoice to the wrong company, or even the wrong department or office of the right company, is another critical error to avoid. Keep detailed records of where invoices should be sent to help your accounts payable department and avoid any delays or mistakes related to your invoice factoring line of credit.

Not accounting for returns and similar processes

You need to be sure any invoices passed along to your financial institution can’t be rendered irrelevant by a partial or full return of products for any number of reasons. Make sure you discuss your return policy with your factoring partner and have a strong understanding of how it can affect the terms of the line of credit provided to you.

Working with a partner who doesn’t support you

Not all financial institutions are created equal. To ensure you have as positive and effective of an invoice factoring experience as possible, make sure to choose an established, reputable and caring lender. TAB Bank values the relationships we build with our clients, and we back that up with strong support and a desire to help your business succeed. To learn more, get in touch with us today.

The post Common Mistakes to Avoid with Invoice Factoring appeared first on TAB Bank.

 

About the Author

Justin Gordon

Justin joined TAB Bank in 1999 in a sales capacity and soon became the bank’s National Sales Director providing direction for TAB’s business development efforts and supervising TAB’s inside and outside sales teams. Justin has over 20 years of experience in providing leveraged asset-based lending and factoring credit facilities to small and middle-market companies from a wide array of industries. During his tenure at TAB, he has successfully developed and managed regional and national sales origination teams. As a results-oriented strategic leader, he has developed a track record of driving incremental revenue growth as well as maximizing total profitability contributions while maintaining exceptional client relationships and minimizing risk. He is a graduate of the Graduate School of Banking at the University of Wisconsin –Madison where he also completed the Executive Leadership Certificate from the Wisconsin School of Business.

As Senior Vice President for Sales and Marketing, Justin provides leadership and direction for the bank’s revenue growth, business development, and marketing strategies.

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