How factoring helps to reduce your risk of bad debt and losses
Regrettably, many businesses in South Africa have experienced a painful loss of income due to unpaid accounts receivable. Bad debt expenses occur when a business is unable to collect the funds that it is owed, because the debtor is facing bankruptcy or other financial problems, and all reasonable efforts to collect these outstanding payments have been exhausted.
Of course, their loss is not just limited to the amount owing on the invoice. It also includes the time and raw materials that were committed to fulfilling the order or providing the service, as well as the future anticipated earnings from that client who suddenly ‘went under’.
It’s not surprising that the risk of doing business with a high credit risk customer can keep even the most experienced business owners awake at night. While they may have gone to every effort to assess customers’ creditworthiness and ask for trade references, the amount of due diligence required to really “know your customer” can be incredibly time consuming and costly. The expense of accurate credit checks and the like may be unaffordable for some smaller businesses.
However, bad debt losses can be a serious challenge for business owners who need constant cash flow to keep their companies operating efficiently. Often, a bad debt can mean there’s no working capital available to the company to pay salaries, operate equipment, cover rent and electricity, and meet other critical day-to-day business expenses.
Even when a company does have some cash to cover everyday expenses, unpaid invoices – with no hope of collecting these payments – could also send a business right back to square one: a place where there’s absolutely no working capital available for growth.
Fortunately, there’s a solution.
Factoring companies are credit control experts
‘Remember that the six most expensive words in business are: “We’ve always done it that way” – Catherine De Vrye.
Sometimes, the best risk control strategy is to outsource the risk mitigation and control function to an expert partner. Teaming up with a well-established, trusted and experienced factoring company helps organisations to minimize bad debt losses and ensure they sell on credit only to creditworthy customers.
Factoring is a business finance solution that is used by organisations around the world; and an industry that is growing rapidly. It involves a company selling its accounts receivable to a factoring company. This unleashes working capital and helps to protect the business against the risks of running out of cash while they’re waiting out credit terms on their accounts receivable (sometimes up to four months).
Yet this is only part of the value that factoring companies can provide to their clients. Factoring specialists also offer expert debtor administration services on behalf of the businesses with which they partner. This saves many valuable business hours that could be spent pitching for new business or landing a new contract.
At Merchant Factors, a dedicated team of debtor administration and credit control professionals analyse delinquent debtors to help clients prevent losses and bad debts. This also facilitates the early identification of high risk debtors.
Merchant Factors makes the debtor administration and credit control process as painless as possible. This includes handling the opening of new debtors' accounts, checking the completion of the credit application form, performing the necessary credit checks and assessing credit limits using intelligence gained from Experian, ITC and Merchant Factors’ own comprehensive database.
With Merchant Factors making informed, expert credit decisions on behalf of businesses, the risk of bad debt losses is significantly reduced.
More reasons to partner with Merchant Factors:
- Complete transparency:
Merchant Factors provides clients with a 24/7 online system that provides clear, comprehensive sales and related debtor management information
- A strong track record:
Merchant Factors was established in 1988 to offer growing businesses an innovative, fast and flexible funding alternative to bank finance. Over the years, Merchant Factors has provided financial and credit control support to over 2,000 organisations, enabling them to meet their business goals.
- No lengthy waiting periods:
As the only truly independent debtor finance institution in South Africa, Merchant Factors can offer businesses the shortest turnaround time in the industry from finance application to pay-out.
For fast, flexible finance and a robust credit risk control strategy – contact Merchant Factors today.
Finance beyond the Numbers.