Invoice Discounting - How to end the Relationship
Small businesses who use
to access short term working capital often ask how they will finish using the service. They worry about using the service endlessly and what this is costing them.
This is understandable, but really not that difficult to address. This is because this version of factoring is a very flexible business finance tool. It allows you to come and go as needed. You only use the service as and when you need to. That said, some businesses can still get into a situation where it seems like a big step to suddenly stop selling their invoices to ensure good cash flow.
If your business has arrived at a position where it can simply stop selling its' invoices becuase it has heaps of cash in the bank, then that's easy. If this is not the case, you should adopt one of three approaches:
1. Gradually reduce the advances
This is particularly suited to situations where you are putting all invoices through the invoice discounter.
If you only have 60% advanced in stead of 80% or 90%, then when the invoices get paid the charge is less and you retain more of the profit. If you go OK on 60% for a few months, then you can try 40% and so on. Ultimately, you can stop discounting your invoices altogether without hitting another major cash flow crisis. Flexibility is one of the major advantages of invoice discounting.
2. Sell Less Invoices
Depending on what proportion of your invoices you were selling in the first place, you can simply start sending out more without discounting them. As with the other techniques, this can be done at whatever pace suits you.
3. Draw Down Later
Just because all the paperwork is completed doesn't mean you have to draw down the money straight away. Once you have the paperwork in place and the money available, you can negotiate to leave the draw down of funds until you really need it. This way the discount ends up being less. This can be combined with the first method of reducing the amount drawn down.
Whichever combination of the above you use, the net effect is that you can gradually wean your business off invoice discounting, thus reducing and ultimately eliminating the cost. It is also very easy to re-start using the system should the need arise.