In the IT staffing business allowing customers a certain credit period to pay for the invoices is common. It is a business strategy that helps staffing companies to retain quality customers reputed for being trustworthy and have a track record of paying on time. Staffing companies use invoice factoring to overcome financial cash flow problems during the period a customer is offered a credit.
It is not the objective of this post to elaborate on how the factoring mechanism works. It is more about how invoicing automation solution CONSULT can be used to strategize factoring to keep cash flow in good health. The invoicing solution can help finance managers and accountants decide which invoice to factor and for what period so that it will not negatively impact the profits of the organization.
Deciding on Factoring Issues
There are many factors to consider when an invoice is factored by a lender; not all will qualify. Strategizing can help the borrower so that interest outgo is minimized and the financial burden does not make any impact.
Complex points come into play at the time an accountant decides which invoice to factor and with which lender. Not all invoices are equal. For example, factoring an invoice on which the staffing company has allowed a heavy discount is not really a fit invoice to factor; likewise, a customer who is not reputed for paying on time is not a fit candidate to factor in either. Since each invoice will be of a different value, it is important to select a combination of invoices for factoring so that the firm does not end up holding on to a large cash asset that the firm does not require and pay interest for it.
Automated Strategy for Better Results
With manual strategizing for invoice factoring, the possibilities of choosing the wrong set of invoices or deciding an improper period of factoring for each invoice can reduce a project’s profit. There are other factors to consider too: consultants deployed in the project, billable rates, subcontractor margin, operating margin for the firm and many other parameters that have to be closely scrutinized.
In many IT staffing firms, the decision to factor, or not to, is not decided by the accountant but by a superior officer because there are issues that the accountant may not be aware of. Automating with CONSULT will help in the strategizing exercise on a scientific basis. The built-in AI, matrices and algorithms will provide an excellent basis for taking the right decision on factoring strategies. Since human intervention is vastly reduced in automation, the chances of any major mistakes creeping in are also eliminated.