Financial institutions use technology and credit scoring strategies to manage lending activity. Now businesses lending to their customers by extending trade credit are learning the value of adopting credit monitoring solutions as an integral part of account receivable best practices.

The credit health of customers is top of mind for many CFOs today. Slow pays, delinquencies and credit losses have a major impact on companies of all sizes but are particularly harmful to small businesses that, in the past, have not had affordable credit scoring and monitoring solutions available.

As businesses emerge from the recession and sales pick up, the best practice is to determine those buyers with a higher probability of payment before extending credit. Like banks, businesses need processes in place to evaluate and assess the credit risk of their customers, and to extend more credit on better terms to support higher sales to those with the least risk and to limit trade credit or use alternative payment strategies for more risky customers.

Scoring solutions help business adapt to a changing economy. A lot can happen, even in a few short months. In these uncertain economic times, some customers will improve while others may decline.  Using software-as-a-service, web-based, AR Best Practice credit scoring technology to segment poor from better credit buyers can produce a competitive advantage.

Poor management of accounts receivables is the enemy of cash flow. For small businesses today, 30-day terms all too often extend to 60, 90 and 120 days before payment is made.

CPAs can help their small business clients better manage cash flow by proactively talking about their payment policies and procedures. Now is the time to help your clients set a 2010 goal of implementing payment acceptance best practices. Why?  Because by implementing sound accounts receivable policies with the objective of lowering working capital, businesses will achieve an operational advantage over their competitors.

Business is, ultimately, about getting paid.  Businesses need to have enough working capital to fund their operations while they wait to get paid.  If a company can improve its processes and get paid a little earlier, this means the company would need less working capital to fund its operations. Companies that use payment technology to run more efficiently require lower working capital.

And a lower working capital requirement in turn reduces the costs of financing working capital. Financing working capital can come from many sources (some more expensive than others). With the tight credit market small businesses are currently experiencing, implementing AR best practices can reduce credit risk, automate manual paper-driven processes and provide skilled invoice follow up support – which combine to produce a more efficient payment cycle.

At VantageB2B.com, our analyst work with small businesses and their CPAs as payment advisors, delivering professional payment resources combining AR best practices with Level 3 commercial card payment acceptance to lower costs, increase productivity and enhance security.

Many small and midsize businesses (SMB) we consult with are afraid of implementing policies and procedures to better manage their accounts receivable (A/R) because they are scared of losing customers. The thought is that if they enforce the credit terms established during contract negotiations that their buyers will simply find someone else to do the job.

Are you scared of your customers? Is this fear preventing you from achieving A/R best practices? Don’t be afraid of making sure your customers pay you on time. The strength of your A/R processes sets the tone of your ongoing working relationship. If you allow buyers to explore how far they can push their payables and get away with it then what are you teaching your customers? Are you broadcasting that you are not good at managing and collecting your receivables? What else might you not be good at?

Successful SMB understand the impact of making good impressions. They create a professional web presence; develop impressive literature; record phone tree navigations to different departments and more, all in an effort to emulate the buyers’ experience of working with their larger industry counterparts. It’s important for company management to understand that how they operate trade credit is also a reflection on their business. Don’t let a fear of enforcing your credit terms permeate through your entire organization. Best practice trade credit administration policies that are clearly communicated to your staff and to your buyers will strengthen your reputation for running a tight ship.

Extending trade credit is essential to attracting and retaining customers but it comes with the responsibility of managing the costs of credit. For example, selling a 60 day term provides a "sales" benefit on the front-end to win business and separate you from competitors. Selling a 30 day term yet allowing your buyers to slip to 60 days is not a smart use of credit. If you originally negotiated a 30 day term only to find that your buyer is slow paying in as much as 60 days - but otherwise is a good customer - consider the carrot of bringing them current, then extending them 60 day terms, with the understanding that you expect them to honor your terms. This creates a better long term customer relationship verses doing nothing at all because at least you are getting paid. And keeping your customers within the credit terms you provide helps your organization better manage your cash flow.

It is the responsibility of the seller to manage their credit terms and failing to do so creates uncertainty for both the seller (When will payment arrive? Is my buyer doing okay? What’s my risk? How should I collect?) and the buyer (Will they deliver another order? Can I delay another week while I pay another vendor first?). Unchecked, this lack of structure, damages the fabric of the relationship.

It’s best to start your buyer relationship under a structured procedure for trade credit administration rather than trying to re-train them later. If you are moving your organization from lax trade credit policies to structured administration, this requires thoughtful client communication. Are you the best at what you do or the best financing source of free money? Maybe it’s both, but knowing how your clients perceive you is important as you communicate your improvements to your trade credit administration. Position this communication as a positive result of your company’s growth.

While flexibility in credit decisions should always be maintained and based on the best available information at the time, having structured policies and resources in place to help make these decisions is key. Are you ready to implement AR best practices?

How important do you consider your cash flow?
Many small businesses focus the majority of their attention on sales but cash flow is king.  This video recommends: 

• Shorting your cash flow cycle
• Taking Early Pay Discounts
• Cutting Costs
• Using Lock Box services to process and deposit payments 

A good way to improve cash flow is to outsource your trade credit.  Trade Credit Express is a business payment platform to outsource your trade credit administration and accounts receivable (A/R) financing providing your business with the payment speed of accepting a credit card, while extending improved trade credit terms for your customers. 

Outsourcing your trade credit administration is a smart strategic decision.
If your company is like most, much of your cash is tied up because you’ve been lending it to your customers through trade credit, providing free, short-term loans to your buyers.  Additionally, most small and mid sized businesses don't have the scale to operate trade credit operations cost   effectively.  Just like outsourcing other business functions like payroll processing, businesses can benefit by outsourcing the administrative functions of operating an in-house trade credit program for B2B transactions.

Start Outsourcing to Achieve:

• Increased capital availability
• Faster payment cycles on invoices
• Improved debt to income ratios
• Reduced risk of non-payment on invoices or customer bankruptcy
• Reduced administrative burdens of extending and managing trade credit
• Increased sales to new and existing customers by offering better terms

Stop Factoring
Outsourcing has distinct advantages over "factoring" including lower advance rates and greater value by more efficiently handling trade credit functions to reduce your administration expenses.  Increasing credit capacity in response to actual growth rather than being limited by historic performance makes an enormous difference to a growing company.

Companies have long benefited from outsourcing.  Popular trends in outsourcing include the business services of payroll, accounting, tax, data entry, human resources, help desk, customer service, lead generation, IT and software development.  A strategic decision to outsource can increase efficiency and allow companies to focus on their core competencies.  Outsourcing can lower costs, make more efficient use of time, labor, capital, technology and specialized resources. 

Retailers long ago discovered the benefits of outsourcing consumer store credit.  Card companies like MasterCard and Visa have built payment systems with economies of scale that deliver effeciencies and costs savings.  By accepting card payments, sellers do not have to worry about the credit of the buyer, nor does the seller have to incur the costs associated with administering the account or bad debt - all of this work is done, for a fee, by the card issuers.   As a result, 95% of all consumer retailers have outsourced their accounts receivable and credit administration function by accepting credit and debit cards.

Accounts receivable (A/R), sometimes called trade receivables or trade credit, is the amount that customers owe a company for goods and services that have been provided.  Traditionally, businesses to business (B2B) transactions are conducted using seller financed trade credit.  Trade credit provides the ability for buyers to purchase goods and services now and pay later.  Typically, the seller sends an invoice requesting payment in a pre-determined number of days.  Essentially, it’s a free short term loan from the seller to the buyer.

B2B buyers depend on trade credit as one of their largest sources of capital  The reasons are simple: trade credit is free (interest is rarely charged), it is flexible (terms are regularly abused) and it is easy to get (if one vendor doesn't provide, the next vendor will). Business buyers will seek out vendors that give the longest payment terms because it is the easiest and least expensive way to fund their business.

Outsourcing accounts receivable for a B2B seller is similar to a consumer retailer accepting a credit card for payment—it enables the seller to immediately receive payment while offering extended payment options to the buyer. This option allows companies to access working capital and lower expenses associated with their credit administration.   Outsourcing accounts receivable also provides a competitive advantage by allowing sellers to offer the best trade credit terms possible to aquire and retain customers. 

Given the current economic conditions, businesses are finding it difficult to increase revenue (due to restricted consumer and business spending) or secure bank funding (due to stricter credit requirements).   Outsourcing has distinct advantages over "factoring" including lower advance rates and greater value by more efficiently handling trade credit functions to reduce administration expenses.   Most small and mid sized businesses don't have the scale to operate trade credit operations cost effectively.   As businesses become familiar with the simplicity of trade credit outsourcing, it will be the model by which virtually all B2B transactions will be conducted.

For 6 million small businesses operating in a struggling economy, these are anxious times.  We’ve witnessed the credit markets freeze, massive bailouts and the most far reaching reordering of our financial system since the Great Depression.  During these tough economic times, more and more businesses are being introduced to alternative financing solutions:

Merchant Cash Advance
With tightening credit markets, merchant cash advance has moved from lender of last resort to lender of only resort for many.  But understand that these funds are very expensive.  Even at reputable companies promoting the lowest rates in the industry, the annual percentage rate of interest can calculate to over 40%.   So it’s important to ask yourself: Is the investment I’m going to make with the advance funds I receive going to generate at least a 40% return on that investment?  If you are thinking of using the money to make payroll or pay other debts, you will have a hard time getting approved.   Recognize that merchant cash advance is a cash flow loan usually paid back over a short time period of 6 months to a year.  Make sure you calculate a 20% or more reduction in your cash flow from credit card receivables during the payback period to determine if you can survive. 

Trade Credit Express
For B2B merchants, Trade Credit Express is a service that can provide non-recourse advanced funds on your outstanding accounts receivables at highly competitive rates equivalent to accepting a credit card for payment.  The benefit is that you are paid in days while your customer continues to enjoy your free and flexible trade credit terms.  In fact, with this product, you can further extend trade credit on longer terms; say 60 or 90 days, to win new business from customers feeling the pinch of today’s tight credit markets.  Credit decision, credit monitoring and payment guarantees are just a few of the benefits of Trade Credit Express.  

Contact Vantage Card Services to learn more about these alternative finance solutions or for a demo or quote. 

Atlanta, GA, May 20, 2008 – FTRANS Corp., a provider of business-to-business and business-to-government payments processing solutions, announced its partnership with Vantage Card Services, Inc. today. This partnership brings new opportunities for both companies as Vantage Card Services will be offering FTRANS® Trade Credit Express™ to its clients, and FTRANS will be gaining new relationships with businesses and banks through Vantage Card Services.

This partnership between FTRANS and Vantage Card Services, Inc. demonstrates FTRANS’ ability to provide not only one of the newest, highest recurring revenue opportunities available for independent sales organizations (ISOs) that traditionally provide merchants with bank credit card services but also offer ISOs an innovative product that will allow them to differentiate from the competition. By offering a proven, reliable payments processing platform to its business-to-business clients, Vantage Card Services will join FTRANS in providing cost effective, efficient payments solutions to the relatively underserved small-to-medium sized business market.

“We are pleased to announce our partnership with Vantage Card Services, a national provider of payment processing services.” said John B. Hayes, CEO of FTRANS, Corp. “They are focused on providing innovative solutions and a high level of customer service to their clients, and we are happy they selected FTRANS as a preferred partner.”

“After evaluating the market opportunity for providing a payments solution for the business-to-business market, we determined that Trade Credit Express was the best fit for our clients and bank partners.” said Ty Hardison, VP of Business Development for Vantage Card Services, Inc. “We believe this solution will enable businesses to more efficiently process their payments, accelerate their cash flow, and reduce their risk in a very cost effective manner.”

FTRANS Corp., based in Atlanta, GA is the inventor of Trade Credit Express™, a business-to-business payment system that provides sellers with all of the benefits of accepting a bank credit card for payment while still providing their buyers with free and flexible business or trade credit terms. In addition, B2B sellers reduce credit risk, minimize costs, and free their time as FTRANS conducts the tasks associated with customer credit administration. The FTRANS platform allows financial institutions to efficiently and economically assume the funding role for trade credit, which is predominately seller funded– the same as financial institutions accomplished with the bank credit card system for consumer credit. For more information about FTRANS, please visit www.ftrans.net.

Vantage Card Services, Inc., a Georgia Corporation, markets and manages credit card processing services and payment systems for merchants, businesses, and banks. They currently support thousands of merchants processing millions of transactions on multiple network platforms. Catering to the sophisticated merchant, Vantage Card’s clients’ average processing volume is three times larger than the industry average. For more information, visit www.vantagecard.com/tradecredit.

Trade Credit Express is a business payment platform to outsource your accounts receivable administration and trade credit financing. With Trade Credit Express you are in a position to extend more flexible credit and longer payment terms to your buyers.

• Increase your sales by extending your customer’s trade credit terms to 60 days and beyond
• Outsource your credit administration overhead including underwriting, credit monitoring, lock-box, payment matching and collections.
• Reduce your personal risk associated with your current line of credit and reduce bad debt with payment guarantees
• Increase your cash flow by closing the gap between sale and payment to as little as 4 days