Is Invoice factoring a good business practice?

More and more B2B businesses have adopted subscription-based or usage-based business models.  The trend started in B2C with video and audio streaming like Netflix and Spotify.   It has become common practice in B2B businesses as well.  Companies such as Carterpillar list on their catalog usage-based pricing for their excavators (price by tons of earth moved).

Billing solutions like Zuora; Recurly; Chargify and many others are selling subscriptions and usage-based billing solutions.

What is the link between subscription and usage-based billing and invoice factoring?  For companies using these new billing services; the number of invoices generated by month is multiplied by 10 sometimes 100.

Billing solutions are not sophisticated in Invoice collection

Most billing solutions provide great invoice creation capabilities but do not handle customers not paying on time.  Billing agents for B2B businesses do not have collection teams ready to pick up the phone.

Invoice factoring is used as a last resort for collection.  But it is quite expensive.  Between the factoring fees; the reserve account and invoice fees; it typically costs 5 to 8% of the amounts collected.

How can you avoid this expensive service without hiring an army of collection agents?

Below are few best practices:

Invoice Early

It sounds obvious but too often businesses send their invoices too late and since most customers do check runs only a few times per month; you can lose weeks of capital for no good reasons.

Start sending reminders before the invoice is due.

I started sending reminder emails 5 days before the invoices are due and it works!  AP teams often add the invoices on the next payment run when they see the reminders.

Use Collection / AR Technology

Since the billing solutions offer only basic collection solutions; there are now many solutions available to help automate sending reminders; leaving voicemail messages according to your own collection schedule.  

There is no good reason to lose 5 to 8% of your invoices; check the market and invest in an AR solution today.

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