Tips to Help Small Business Owners with Slow Paying Customers

Did anyone happen to see the article in Costco’s publication that discussed factoring as an alternative financing route for small business owners? If not, you’re in luck, as the invoice funding experts at The Factoring Blog has decided to share parts of the article that we thought would be interesting for our factoring blog readers.

The article, Tips for Dealing with Slow Paying Customers, first explained how larger corporations are basically informing their smaller vendors that they will be paying their bills late. This kind of situation is forcing small business owners to provide free loans to larger companies, which inhibits their own growth.

The article then discusses a couple of ways that small business owners can respond to the unfortunate circumstances.

John Barrickman, a Costco member and president of New Horizons Financial Group, suggested for small business owners to look into their uncollected receivables, and beef up their collections efforts. He also encouraged small business owners to start utilizing some banking features to help them collect quicker, such as lockboxes, remote payments and electronic processing. He also said that when one or two of a small company’s customers slow down their payments, it’s time to really focus a lot of energy on getting the rest of its customers to pay promptly.

Lisa Aldisert, another Costco member and president of Pharoas Alliance, Inc., suggests for entrepreneurs to take another look at their payables procedures. Aldisert said, “Stretch your payables as long as possible without hurting your vendors, unless you’re offered a discount for prompt payment…[just] don’t be late; you want to maintain excellent trade credit.”

Finally, Tracy Eden (Costco member and president of the Commercial Finance Group) suggested for these struggling small businesses to consider accounts receivable factoring as a way to improve their cash flow. A business owner can sells its receivables to a factor at a discounted rate to receive cash upfront instead of waiting months to be paid by their customers. Factoring firms typically advance between 70-90 percent of the invoice up front. When the factor receives payment on the invoices it purchased, it give the difference between the advance and its fees back to the business owner. It’s a great way for small companies to improve their cash flow and maintain good vendor relationships.