Offer Credit Terms Through Invoice Financing

Extend Customer’s Net 30 to Net 90 with Non-Recourse Invoice Factoring

How to Use Invoice Factoring to Offer Credit Terms

Offer Credit Terms through A/R Financing

Can I safely offer my clients net 30 or net 60 days to pay?

For many business owners, waiting for payment after service completion can be up to 60 or 90 days. Small companies with commercial clients often must offer extended credit or payment terms. In addition, large S&P 500 companies are now dictating terms of net 60 to net 90 if you want to do business with them. What can an under-capitalized small business do if it can’t afford to offer long invoice payment terms?

The major downfall of offering credit terms to customers is the provider or supplier’s lack of cash. Small businesses do not have sufficient cash reserves, which puts business owners in a challenging situation. Also, you can offer net 30 invoice payment terms, and your large customers still take 45-60 days to pay you.

Your invoices should clearly state the invoice date, the invoice payment terms, your client’s PO or reference number, early payment discounts, accepted payment methods, preferred payment method, when the payment is due, and any late payment fees.

We will explore the safety of offering your customers payment terms and mitigating cash flow shortages. Our article will cover the basics of payment terms, the advantages of invoice factoring or invoice financing, and finding an invoice factoring company that will take the credit risk.

What are Payment Terms?

Payment terms are the contractual obligations between a supplier and customer that dictate when clients pay their invoices and other critical conditions or clauses. Many times, your much larger customer dictates the credit terms, not you.

Payment terms range from 15 to 90 days or longer. Commercial clients were known to extend these terms with their internal policies in the COVID environment. Payment terms are a delayed payment method or trade credit for the customer.

Invoices with payment terms have a standard format for their notice. The notice is the due date: “Due in Net X Days,” “Net X Days.” Commons types of payment terms across all industries include Net 15 Days, Net 30 Days, Net 45 Days, Net 60 Days, and even Net 90 Days. Some industries, like automotive parts retailers, have a net 180(!) days as the norm.

You will also see these terms with an additional discount for the early payment feature. For example, invoice payment terms of 2-10, Net 30 means the customer gets a 2% discount if paid in ten days and no discount within eleven to thirty days. But be careful, as large companies will take the 2% and still wait 45 days to pay you. An invoice factoring line of credit can help.

Common invoice payment terms include:

• Net 30: Payment is due within 30 days of the invoice date.
• Net 15: Payment is due within 15 days of the invoice date.
• Net 7/10/30/60/90: Large companies can force their long payment terms on small business vendors.
• Due on Receipt or Due Upon Receipt: Payment is expected immediately upon receipt of the invoice.
• 2/10 Net 30: A 2% discount is offered if payment is made within 10 days; otherwise, the full amount is due in 30 days.
• Monthly or EOM: Payment is billed at the end of each month for services rendered that month.
• Partial Payments or Deposits: A deposit or down payment is received, and then the balance is due upon receipt of goods or the provision of the service.
• Cash in Advance (CIA) or Cash on Receipt (COD): Goods aren’t shipped until the payment in advance is made/cash is received (CIA), or on delivery, a check or credit card is swiped (COD).

No matter which invoice payment terms you choose (or are forced on your company by your large customers), it’s a great idea to outline them clearly on your invoices. This invoice payment terms transparency not only helps clients understand their obligations but also minimizes potential confusion or disputes down the line. Establishing strong payment terms with late fees can strengthen client relationships and contribute to a more efficient invoicing process.

Payment Terms Downfalls

Offering your commercial clients terms is great for generating revenue but comes with cash flow timing issues. Small companies offering payment terms often have to purchase products to sell to their customer and wait two to three months for payment. Your company must still operate during this period and cover payroll, marketing campaigns, insurance, rent, and technology expenses. If your business does not have strong liquidity or cash reserves, your cash will inevitably run low or out. How can you get paid faster?

Additionally, there are no guarantees that your customers will always pay on time or in full when offering payment terms. Bad debt occurs when your clients do not pay their invoices but receive your product or service. Your customers may fall into tough financial times or refuse to pay due to many reasons or discrepancies. Bad debt hurts businesses because they write off the accounts receivable and never capture payment.

Qualifying Clients for Invoice Payment Terms

Offering payment terms to your clients is a selective process, and you should qualify your customers. Extending credit to unworthy customers can be costly to small businesses. Accordingly, running a credit report on your customer is an effective tool to determine creditworthiness.

To make timely payments, it is essential to only offer credit terms to clients with a solid financial profile and capital. More importantly, qualifying clients do not guarantee that your small business can offer these terms. Your company may need to temporarily cease operations due to cash shortages by extending payment terms. 

If this is your company or small business, it may be time to consider financing your invoices and returning to positive cash flow. Let’s look at this type of business financing when offering invoice terms to get paid faster.

Invoice Financing and Factoring Enable Payment Terms

For many startups, emerging, and growing companies, the risks of offering payment to their commercial clients are so significant your company might stop – temporarily at least. Small businesses with limited capital have difficulty delivering products and services with long payment periods as they must put their cash in upfront. This can cause new business deals or opportunities to be lost as entrepreneurs have little capital. Grow your sales with Accounts Receivable Factoring.

Invoice financing or factoring your accounts receivable (A/R) provides immediate cash flow and allows you to offer payment terms. Many small businesses and entrepreneurs will find invoice factoring a more efficient and generally more accessible form of financing than traditional business loans or lines of credit. 

Invoice factoring provides the majority of your A/R in the first payout, usually within days of submitting your invoices and documentation to the factoring firm. The first payout or installment can range from 70 to 93 percent of your A/R. The second payout is delivered once your customers pay their outstanding invoices in full. Before the second installment, the factoring company will deduct their fee, concluding the accounts receivable factoring transaction.

Reasons for Your Business to Invoice Factor or Use A/R Finance

Invoice factoring provides many benefits to your business. The main contributions include:

1. Provides immediate cash flow with high Cash Advance
2. Small companies can offer extended payment terms
3. Easier to obtain than traditional financing 
4. As your business grows, so does your line of factor finance
5. Invoice factoring services can be a long-term solution
6. A/R Management and Collection Payment Services
7. Non-Recourse Factors like Bankers Factoring take the Credit Risk

Who Qualifies for Invoice Factoring?

Many small businesses, startups, and entrepreneurs utilize invoice financing or accounts receivable factoring to solve their cash flow shortages – companies of any size can qualify for invoice factoring. General qualifications include:

1. Strong internal processes for invoicing and documenting A/R
2. Commercial clients with creditworthiness
3. Ownership teams with business experience 
4. Businesses with sound fundamentals and a profitable future

How to Choose an Invoice Factoring Company?

Invoice factoring companies provide many benefits, but finding a strategic fit for your small business is essential. When prospecting invoice factoring, companies ask the following questions to see if they meet your criteria:

1. Do they offer both invoice factoring and invoice financing?
2. Do they have experience in your industry?
3. What is their specialty? Recourse or Non-Recourse Factoring?
4. Does the company have a minimum or maximum for invoices, dollar amount, or monthly volume?
5. How do their current and past clients feel about their level of service?
6. What are their factoring fees? Do you understand their factoring agreement?
7. Will The Factoring Co take the Credit Risk?
8. Do they have online reporting of unpaid invoices?
9. What is the turnaround from account setup to working capital funding?

Should You Offer Selling Terms?

Small businesses looking to acquire or sustain commercial clients have challenges offering payment terms. The main challenge is the cash flow shortages due to the longer payment windows.  Knowing your customers have good credit is not enough.

Business owners lacking large cash reserves turn to invoice factoring to pay their employees, suppliers, growth initiatives, and business partners to grow their business.

Invoice factoring can enable startups, small businesses, and entrepreneurs to achieve their goals by providing cash when needed. Selling your invoices to a factoring company keeps businesses in operation and growth plans alive. Contact Bankers Factoring to see how factoring works and for the types of factoring that can safely grow your business. Learn how to safely extend credit terms with non-recourse invoice factoring and stop waiting for customers to pay in 30-90 days for a cost similar to swiping a credit card.

How to Safely Offer Credit Terms to Your Customers? Use Non-Recourse A/R Financing from Bankers Factoring.

Ready for the owner-employees of Bankers Factoring to finance your entrepreneurial dreams even with extended customer credit terms? Call 866-598-4295 or go to Bankers-Factoring-Application.

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