Waiting up to 80 days for payment can have negative financial consequences for a business especially when they don’t have the resources or capital to pay for raw materials and do payroll during this waiting period.
Large companies often have many complicated internal approvals for invoices so this can slow down payment. The other reason is that the company gets to use your services free of charge for a while.
Ask clients to pay quickly and offer a discount
A way to solve this issue is to ask clients to pay quickly but they won’t do this for free, therefore it can be helpful if you offer an early payment discount of around 2%. This approach saves them money and also improves your cash flow.
A smart way of offering net-30 terms
Factoring is a financial tool designed specifically to help companies that must offer terms, but can’t afford to. Factoring uses a financial intermediary, a factoring company, to buy your invoices and advance you money against them. A transaction looks like this:
- You deliver your product or service
- You invoice your client
- The factor pays you, using the invoice as collateral
- Your customer pays, which closes the transaction
Your invoices are used as the main collateral for the transaction, so it’s important that your company has good invoicing practices and that the credit quality of your clients is good.
Invoice financing shortens your working capital cycle allowing you to grow your company. If used correctly, it provides the benefits that you would get if your clients paid upfront.
Improve your client portfolio
You should only be offering payment terms to customers with good credit history, this because the only thing worse than a slow payment is no payment at all.
For more information on cash flow finance and other trade finance products contact Nova Finance Group on firstname.lastname@example.org or simply complete the enquiry form on this page and one of our SME cash flow finance experts will contact your for an obligation free consultation.