A large number of business people are actually very sceptical about starting a trade relationship with factoring companies. The reason they are giving is that this trade relationship might ruin that they have already established with their customers. Most of them are of the opinion that getting in a third party to handle their customers might cause conflict that will cause their customers to walk away. The truth is that it will all depend on how you as the business owner will handle the entire process.
How do factoring companies work? This would be a very good point to start from. Factoring companies basically pay businesses for their invoices before the business’ customers make the payment. Once the customer makes the payment, the money is given to the factoring company. It is important to understand that this is still a trade relationship that is being formed between the factoring company and the business in question. The customers of the business should not necessarily be involved in the entire process.
It is not necessary for the customers to know that there is a third party involved in the entire trade relationship. All the customers need to do is to be issued with their invoices and pay for the invoices when they get the money to do so. Everything else ought to be taking place between the factoring company and the business itself. All transactions can simply go through this channel.
When the business prepares the invoices, it can send a copy to the customer and then send another copy to the factoring company. The factoring company will then make payment for the invoice issued. The business can in the meantime continue running its operations from the money that it has received form the factoring company. Once the customer is ready to make payment for the invoice, the payment should be made to the business as usual and then the business can pay the factoring company what is due to it.
The threat to the customer’s relationship with the business can only be made when the customer is forced to start dealing with third parties that it does not know where payment is concerned; remember that money is a sensitive issue for everyone. It is just up to the business to step up and ensure that there is no communication or contact between the factoring company and its customers and everything will run smoothly; no relationships will be destroyed.