For many businesses, the single biggest deterrent to factoring is concern about what working with an accounts receivable financing company will do to their customer relationships. From fears about how customers will perceive the financial viability of the business (and consequently take their business elsewhere), when to issue a purchase order and concerns about the factor’s collection policies and procedures, business owners carefully weigh the benefits of factoring against the potential for damage to their business.
The truth is, though, that factoring generally does far more good for a business, and it’s possible to maintain great customer relationships when you factor — or even make them stronger. When you’re honest and upfront, and work with a factoring company that cares about your customer relationships as much as you do, there’s no need for concern.
Choosing a Factoring Company: The First Step in Maintaining Good Relationships
The most important aspect of maintaining positive customer relationships is to select the right factoring company to work with. When comparing factoring companies to handle your invoices, look at their records in regard to customer relations, collection procedures, and professional communication. You do not want to choose a company that offers a great rate, but then continually bother your customers or treats them unfairly. Do your homework to ensure that the company you entrust with your invoices and, by extension, your hard won customer relationships, will treat your valued customers the way that you would. Request references, check with the Better Business Bureau, and seek out reviews online to learn more about their practices, and find a company that shares your values and will help those relationships flourish.
The Notice of AssignmentÂ
By law, you must send customers whose invoices are being factored a Notice of Assignment (NOA) notifying them of the arrangement with the factoring company. Some factoring companies offer non-notification factoring, which allows you to skip the NOA, but these agreements are becoming increasingly harder to find.
The NOA needs to include several important points of information: An official notice that the factor has taken over the account and will be managing your accounts receivable for you, and thus has a right to the invoices, and information about where payments are to be sent going forward. In some cases, the NOA needs to contain additional legal notices, and your factoring agency will provide guidance to you.
While this is the only required information, to maintain transparency and good customer relations, you’ll probably want to include some more information, reassuring your customers that your company is in good financial standing and that the quality of your products and services that they have come to expect will not only continue, but improve. There’s a good chance, in fact, that many of your customers will actually be familiar with factoring and will not have any concerns at all, but on the off chance that they do, be prepared to answer questions and provide reassurance.
Above all, it’s most important that you remind customers that the factoring company is not a collection agency, and that the terms of their invoice are still the same. Reassure them that the factoring agency is simply managing your accounts receivable, and that your decision to factor has nothing to do with their payment history or creditworthiness. You should also reiterate that all payments should be sent to the factoring company, and that they can contact the company for copies of time sheets, purchase orders, and other documentation.
Maintain Open Communication
Finally, as with any relationship, maintaining the lines of communication is vital to any successful factoring relationship. Keep in touch with your customers, and promptly address any concerns that they may have about the new relationship. You should also stay in contact with the factoring agency to stay abreast of any potential issues before they become serious. Most companies offer online portals where you can review the status of invoices, as well as regular reporting that helps you see where your customers are in terms of payments and creditworthiness, so you can identify — and solve — potential issues sooner.
There are many good reasons to consider invoice factoring for your company. Don’t let concerns about the impact on your customer relationships prevent you from accessing the cash you need to support and grow your business. The right company will treat your customers as you would, and actually support your success.
