Accountants play an essential role in an organization or business they’re a part of. With their deep understanding of financial statements, taxes, and inventory management, they can significantly contribute to a lot of financial decisions concerning your business. They’re also capable of extending help in other areas of running the company in more ways than you can think.
For example, if you have a lot of accounts receivable (sales that haven’t been converted to cash or paid by clients,) you might end up not having enough funds to pay for your bills. In such cases, factoring could be of great help. But if you’re not entirely familiar with factoring and its components, you can turn to your accountant for help.
Business and cash flow can be compared to a boat on the river. The boat is your business, and the river works like the cash flow. You need real cash to replenish inventory to ensure your business remains afloat. Consistent cash flow keeps the company going. However, there are times when your clients might take a while to pay for their invoices. When you badly need cash to pay for supplies and your employees’ paychecks, factoring could be of great help.
Once a customer has agreed to purchase your goods or services, you’ll have that sale recorded under accounts receivable in your business book. But if they’re taking too long to settle, you can sell the value of what the customer owes you. This is what factoring is. It’s a faster way to generate cash if you can no longer wait for the customer’s payment.
But How Can an Accountant Help?
You may be thinking since it’s basically similar to borrowing money, like banks or commercial finance companies where you’ll sell the accounts receivable to, you can deal with the transaction all by yourself and leave your accountant out of it. But looking at it more closely, your accountant can actually help you a lot in managing your factoring accounts.
To give you a better insight, here are some ways an accountant can help in factoring management:
1. Helps You Choose The Right Factoring Option
For one, a certified public accountant (CPA) can clearly explain to you the difference between recourse and non-recourse factoring. It’s crucial to know which one would best suit the needs of your business and how it can help better in improving cash flow.
Recourse factoring is more straightforward wherein it states that your company will be responsible for any failed payment from your clients. In essence, you’ll need to buy back unpaid invoices. Meanwhile, non-recourse factoring comes with stipulations stating that you’re not responsible for non-payments from customers. Non-recourse is usually available at a higher cost and is often offered to companies with a good credit rating.
Your CPA can give you a better understanding of these two factoring categories. Before signing any contract with factors, they can review the agreement first and see to it that you won’t be at a lesser advantage in any way.
2. Keeps Track Of The Factoring Records And Deals
When you sell your accounts receivable to a factor, those accounts will no longer be included in your financial statements and books. It can be challenging to track all the transactions in such cases, especially if you’ll be the only one handling and managing everything.
Since your accountant is the professional responsible for your financial records, it’ll be part of their job to oversee your factoring records and make sure everything will be accounted for.
3. Assists You In Creating A Smoother Cashflow After Factoring
Upon selling your assets (invoices,) your cash flow will need a more meticulous working up. A CPA could significantly help in making sure the cash flow will be smoother moving forward. Sometimes it can’t be helped to experience hiccups when you just sold an asset of your company. This is what an accountant can help prevent from happening.
They will ensure bills and suppliers will get paid as intended, as well as the salaries of employees and staff. Taxes should also be prioritized, along with renewals of permits and licenses as necessary. Since they work with some of the best accounting software available, their system is more efficient and easier to track. With a smoother cash flow, your accountant can also help strategize a financial plan to make up for the loss incurred when you sold your invoices.
Ways An Accountant Can Help In Factoring Management – Summary
With an accountant by your side, it’s plausible to expect that factoring management will be easier and more efficient. As the business owner, you get to free up some of your time to concentrate on running the business rather than focusing on factoring deals and records.
A CPA can help you choose the right factoring option and accounting software from where your business can greatly benefit from. They should also be able to help you keep track of factoring records and deals. Lastly, an accountant can assist you in creating a smoother cash flow after factoring. This will ensure your business remains anchored to your mission and vision.
Factoring could benefit your business in more ways than one. However you need someone with a working knowledge of how the whole process works to ensure you’ll be getting the most of what your factor has to offer.