5 Ways Factoring Can Reduce Your Operating Costs

We normally think of factoring as a way to fix cash flow problems. While that's true, factoring can also reduce your operating costs. Simply having consistent cash flow on hand and reducing the overhead you need to manage your accounts receivable can significantly lower your operating costs, making your business that much more efficient and profitable. Here are five ways that you can use factoring to reduce your operating costs: 

1. Outsource or Better Manage Staff

Do you currently use subcontractors to fulfill the larger orders you get? Do you have to lay off staff sometimes when your cash flow dries up? Factoring ensures a consistent cash flow, which allows you to manage your payroll or outsource some tasks to make your business more efficient.

Consistent cash flow may also mean that you can keep more, higher quality staff on hand. Creating a better work environment will enable your employees to give you their best, which can reduce overtime payments and the high one-time costs of hiring and training.

However, it can be even more cost-efficient to outsource specific tasks, including IT, accounting, and marketing, all of which can substantially decrease your operating costs. 

2. Buy Materials in Bulk

For some industries buying in bulk can be a huge savings. Suppliers can afford to give you significant discounts when you buy up more of their product, and this can even lead to a better working relationship with the supplier over time. You become a better customer, who gets more of their time and attention.

Unfortunately, not every business has the cash on-hand to buy in bulk, even when they know they’ll use all the material quickly. Invoice factoring can give you the cash boost you need to make better purchasing decisions, including getting those bulk discounts.

3. Buy Based on Subscription

Working with perishable goods? Those in food manufacturing and similar industries may not be able to buy in bulk because they won’t use all of the supplies in time. In this case, suppliers are more likely to work out discounts based on how consistently you purchase from them. Some suppliers have moved to subscription models; however, you may not be able to take advantage if you have an inconsistent cash flow. Invoice factoring can help. 

4. Accounts Receivable Management

When you use invoice factoring you do not need to manage sent invoices or chase clients to pay you. This can save a ton of time and money. Not having to remind clients about invoices and arrange for payment may mean that you can reduce your accountant or receptionist staff or freeing them up to maximize your business in other ways.

5. Save on Collections Agencies

There are some clients who just won’t pay, so you need to use collections agencies or other expensive measures to get your money from them. One great thing about non-recourse invoice factoring, is that you never have to worry about collecting from a client. If they don’t pay, your factoring company will do the work of taking them to court for you.

At J D Factors our team will work with you to create a plan to reduce your operating costs. Reach out today to learn more about how factoring can help your business.

Never Have to Write Off Bad Debt Again

When a client of yours is unable to pay you, you simply have to take the hit. You can write off bad debt, but you can’t recover the strain on cash flow you’ve been suffering, and you can’t get back the time you spent trying to recuperate the debt. In fact, bad debt hurts companies in both B2B and B2C industries more than you might anticipate. 

The Negative Effects of Bad Debt

Typically, you will complete a quote or project for a client well before you realize they won’t be paying you. The result is a reduced cash flow that doesn’t just affect the un-paid project, but also your projects with other, more stable customers.

How does reduced cash flow from a delinquent client negatively impact customers with whom you have a strong relationship? Reduced cash flow means you run the risk of not being able to quickly fulfil customer’s orders and it can prevent you from expanding your business, buying new equipment, or taking advantage of opportunities for growth. Writing off bad debt can cause you to lose a hundred little opportunities.

One bankruptcy can ripple throughout a whole industry. The bankruptcy of Target Canada Co. left more than 1,700 companies with bad debt, ranging from a few thousand dollars to a few million. Any amount of bad debt can threaten a company’s future success, and all of these companies will have to handle this shortfall somehow.

Five Tips to Avoid Bad Debt

It’s best not to let yourself get into this situation in the first place. Here are our best business accounting tips to avoid bad debt:

1. Use Credit Checks

You can avoid a landmine of bad clients by checking their credit. Even if you do want to take on clients with less than stellar records of payment, when you use credit checks you’ll understand what kind of risk you’re taking on. When you work with J D Factors you receive complimentary client credit checks.

2. Send Invoices and Follow-Up Aggressively

Even a few extra days of non-payment can affect your business, so you need to send invoices right away to get the ball rolling. What about following up? Don’t be aggressive in tone, of course, but following up on missed payments is important to keep the pressure on clients and be sure you’re at the top of their payment list.

3. Penalize Late Payments

Think about it, if a client has more than one outstanding invoice, they’ll pay whichever one is costing them the most first. That’s why it’s important to charge interest on outstanding payments.

4. Hire a Collection Agency

How do you chase after bad debts without taking up too much of your staff’s time? It can be more effective to use a collection agency whose staff have the training to get payments faster. Even better, use a factoring service like J D Factors and the invoicing and debt collection becomes our job.

5. Use Non-Recourse Invoice Factoring

Non-recourse factoring protects you from ever having to write off bed debt. The factoring company pays your invoice right away and takes on the risk that your client may not pay if their business goes under. At J D Factors we will not ask for your money back if your client never pays us due to bankruptcy. You significantly reduce your risk, and don’t have to waste time and resources chasing after payments. Give us a call today to learn more about factoring.