Cleverly used factoring service may bring specific benefits for an enterprise and considerably improve its relationships with customers.
Companies that make use of factoring services usually try to hide additional costs before their contracting parties. Such operation is possible thanks to the discount granted for cash payment. In many trades, such as e.g. fuel or steel wholesale, transport or construction services this is practically a standard practice.
Additional benefits in the relationships between entrepreneurs (who make use of factoring) and their suppliers are less measurable and clear-cut factors, namely building an image of a reliable and diligent payer. More and more companies become convinced that at the apogee of the crisis, when working capital is hardly available, those companies that paid in advance could pick and choose not only suppliers or the quality of goods to be delivered, but also additional terms, such as options or prompt execution of deliveries.
It is considerably more difficult for the customers to share costs of factoring services with their contractors. Then there appear comments that these are, actually, academic theories and real business does not practically give such opportunities. At the same time, when asked how many of their customers were provided with a specific offer with a variant-related cost model depending on the payment deadline, the same entrepreneurs answer that they have not even tried to do it.
They are convinced that they perfectly know reactions of their customers. It is true enough, the more that low-margin sectors, especially those relating to trade, cannot allow themselves to take additional part of the financing costs.
According to experiences gathered by entrepreneurs in a given market segment, the barrier involves lack of rational negotiations. In the majority of cases this results from limited communication and, first of all, from limited understanding the essence of the case. Since if we have a group of permanent customers with repeatable transactions, it would be nothing extraordinary to provide them with a variant-based offer, i.e. basic price with the payment period of 14-30 days and suitably priced subsequent time intervals, during which we incur the costs at the factor, wholly or partially, adding such costs for our customer. Opponents of such solution usually raise the argument about long-lasting habits on part of customers or possible deterioration of relationships because of that. Certainly, it is true.
However, we must note that we provide a variant-based offer. Our customer MAY but IS NOT OBLIGED to use it. Sometimes, even the most obstructive customers may, at first occasionally, and then maybe regularly, respond to our offer. In effect, they receive the fastest and the cheapest form of acquiring working capital, usually with no additional securities, bank procedures or incurrence of fixed costs.
Additionally, we must remember that a group of customers who are even the most eager opponents of changes, have their better and worse liquidity cycles. It often turns out that we are the only supplier who offers such payment terms. Moreover, in connection with various loyalty programs, adjusted to the specificity of the trade, they may ensure revenue on the stable volume of turnover generated by the customer who is satisfied with our cooperation.
Apart from that, even if the customers do not agree to participate in the costs of a trade credit, we may offer them a longer payment period for free. Of course, provided that they increase the sales volume with us, where – when doubling the turnover – we will generate revenues covering not only the factoring costs but also the costs of the trade credit.
There is even no need to mention marketing and canvassing benefits than enable us to win those customers, who expect longer payment periods at the very beginning of the cooperation.
It is essential to be aware that both transaction terms and market environment change. Only those who are flexible in their offer and provide for relevant changes, offering several options for their customers to choose from may count on becoming successful in their sales.
Published on: 14 November 2016