Factoring business is all about juggling money without a break. A small mistake can cause great loss to your business. So, the management of a factoring business should be keen on the client details, paperwork and communication channel.
Most factoring businesses are into this arena for more than a decade and their clientele list is ever increasing. With a steady increase in the number of clients, a factoring business have to deal with too many invoices. This situations calls forth for a need of a bigger AR team which will not consume towering expenses.
In such a scenario, the best decision for a factoring business would be to outsource their Accounts Receivable (AR) Team to an external agency. Apprehensions can be many, when an external agency handles the most important team (AR Team); that acts as the bridge between your business and your clients. These apprehensions can be more critical for factoring businesses, which are non-recourse. So, after knowing the pulse of the industry, we are giving explanation to the top 3 concerns while outsourcing your AR team.
# CONCERN 1
Will an external AR Team be proactive and will they be able to maintain brand value like an in-house team?
One of the biggest concerns usually factoring companies have while deploying an external agency to handle their AR team; is whether the external team be able to maintain client relations, the way the internal team does. Anything can happen, including the worst situation where customer may get irritated by the external team’s service and might lodge a complaint to the factoring company. In worst case scenarios, the customer might decide to close the engagement with the factoring company.
So, the external AR agency should be tactful enough to handle numerous clients and should brush up their skills on maintaining healthy client relationships. The collection executives in the external AR agency should deal only with specific clients assigned to them and they should be trained to keep all the details highly confidential as well as to take account responsibilities. The representatives should be in charge to share regular updates and reports with the factoring company and inform about all major communications made with their clients.
# CONCERN 2
Will an external AR Team be able to complete the accounts receivable process without any confusion and how efficiently they can handle it?
AR Team of an experienced agency knows the nuances of an AR process. Like a faithful substitute to your in-house team they must be competent enough to;
- Confirm and receive the invoices from the business end
- Contact and notify the long list of clients
- Send and receive all factoring documents
- Accounts receivable bookkeeping, including EDI invoice and payment processing
- Collect the payment on time and solve issues related to payment
A methodical external AR team will have a clear-cut view on;
- Maintaining healthy client relationships
- Client payment history and keep track of the past records
- Risk exposure and related complications
- To what level your factoring business can extend the credit
- The existing law and bills passed in the court of law for factoring businesses
- If for non-recourse factoring, what are the precautions to be taken while handling accounts
- Setting everything in written format and documentation
- Following an organized policy, which is visible to you as well as your clients
- Negotiation procedures
- Late payment or wrong payment policies and consequences
A trustworthy external AR team;
- Will be agile to go live in a month
- Will take complete ownership of the AR collection with least intervention
- Will have prior experience in Factoring
- Would be able to seamlessly integrate with the existing team and process
- Will be able to maintain the brand value
# CONCERN 3
How capably an external AR Team can narrow the communication and documentation errors?
The main aim of a factoring business is to have maximum collection within a minimum invoice aging period. One of the main reasons for late collections is the delay in communication. Now with an external agency in place, the factoring business’s major concern might be to evaluate whether the external team can manage the communication with;
1. The Customer – to ascertain the missing paperwork, amount differences, follow-ups, etc. Marginal mistakes can be expected even when an in-house agency handles multiple clients. When an external agency handles your accounts receivable services, will they be able to reduce the errors? The answer is yes. Their expertise enables them to concentrate even on the minutest details, which involves:
- External AR team cross-checks and verifies details multiple times to avoid mistakes while documenting and creating a database on client details. Usually, an AR Team will have a copy of each of the below documents;
- The factoring company’s agreement that was made with the client
- A personal guarantee
- A limited power of attorney
- Notice of Assignment ( NOA)
- If a document is missed out or a discrepancy in submission is noticed, an immediate notification is send to the factoring company as well as to the clients
- In case of wrong payment or difference in invoice amount, a clarification query is raised to both the ends.
2. The factoring company – to communicate the problem identified and make sure the necessary actions are taken involving regular follow-ups, etc.
Apart from the above concerns there will be many more questions related to the topic, you would want an answer to. The experts from BusinessMojos is ready to answer to your queries. Do write to us at reachus@businessmojos.com or leave us your query in the below comment space.
