Collecting outstanding accounts receivable is becoming an increasingly frustrating problem for companies throughout the advertising industry. Every day spent waiting for payment depletes a firm’s ability to cover financial obligations and grow their practice. In response to this, many Ad firms are turning to invoice factoring. Invoice factoring in the Advertising industry is a relatively new practice and while it does provide companies with fast access to cash, there are some significant risks associated with it that you need to know about.
In a recent article on adage.com, an advertising executive explained the accounts receivable problem, “60 days has replaced 30 days as the standard for when payments are received. Add to that the 60 to 90 days it takes to generate billable work for a new client and it can mean five months before any cash arrives.” While factoring can give these companies fast access to cash and capital, it does not come without its drawbacks, especially when there are other ways to increase cash flow and access to capital that will be more beneficial to the company.
5 Reasons to Avoid Invoice Factoring in the Advertising Industry:
- When a business factors an invoice, the customer is notified. A large majority of customers will then assume that your business is failing because of your choice to factor invoices which will likely lead them to take future business elsewhere.
- Your customers will deal directly with the factoring company for payment and some of them may not be too happy about having to deal with a company outside of your own.
- Factoring is expensive depending on the percentage of the invoice the factoring company is taking and if your customer never pays them, or delays payment further, you could be stuck with an even larger fee to the factor than you had planned.
- Once you start with factoring, the company taking on your invoices then has the power to restrict you from doing business with certain customers based on that customer’s credit history.
- You can potentially get stuck in lengthy contract with your factor that you may not want to be in. If this was just a short-term solution to a cash flow problem, getting trapped in a 2-3 year contract will not support your overall business strategy
- And other problems.
All of that should have you asking yourself one thing….why risk it?
We have come to find that a majority of the problems that lead to delayed payment are caused by a company’s internal invoice and collection process. The good news is that there are some very simple and easy things you can do to fix those problems without having to incur the fees or other risks associated with invoice factoring. Some of these quick fixes include:
- Cleaning up your contact information to ensure invoices are getting to the right person.
- Get invoices to customers faster.
- Sending monthly customer statements.
- Make your invoice templates more effective.
- Come up with a collection policy or revamp your existing one.
- Make sure you have the right number of employees focused on collections.
- And more.
By making just a few of the above changes you will see a night and day difference in your outstanding receivables. Visit our resource center to learn more about how you can make those changes today and start getting paid faster tomorrow.