1. Know what the term means. It’s a way to turn your accounts receivable into cash by selling them to a finance company called a factor.

2. Make sure you understand the fees you will pay for this service. They typically include the cost of funds and making the collections.

3. Balance the cost against the gain. Factoring can be expensive but it may fuel your growth, improve cash flow, or enable you to take advantage of supplier discounts.

4. Ask your bank or CPA to recommend factors. Check their references.

5. Visit www.cfa.com, the Web site of the Commercial Finance Association, and the International Factoring Association at www.factoring.org for a list of factors. The CIT Group site, www.cit.com, provides information on factoring (click on “Business Financing,” then “Commercial Finance,” to access the search feature).

With over ¾ of the American population using some form of plastic for regular purchases, businesses–especially online retailers–can’t afford not accept credit cards as a form of payment. Credit or debit/ATM cards make transactions fast, easy and error free. Credit cards are also reliable payment method for businesses that are not able to accept cash or checks.
Accepting credit cards isn’t only beneficial to retail stores. Professional service firms (accountants, attorneys, dentists, physicians, etc.) are also jumping on board, allowing customers to use credit cards to pay bills or invoices for services rendered. Accepting credit cards online allows you to take client payments quickly and easily.

To accept credit cards, you’ll need to open a merchant services or online credit card processing account. A merchant services account is the intermediary between your business bank account and your customers’ credit account. When a customer pays with a credit card, funds will usually reach your business bank account several days after the actual transaction–the merchant account provider verifies credit limits, processes the transaction and transfers the funds. Though credit card payments are not as fast as cash, they can definitely be faster and more reliable than the traditional invoicing process. There is no need to wait for customers to transfer funds or send a check.

Opening a merchant account provides several benefits. Businesses without merchant accounts usually use the “phone in” method to verify transactions. With a merchant account, you can use a credit card terminal or link processing functions to your POS system. Customer payments will take seconds to approve, and in some cases only a few hours to verify and transfer. Using a merchant account eliminates the need to phone a customers’ credit card company, verify the credit card number, customer information or relay purchase amount details.

Some businesses choose to accept credit cards without opening a merchant account. You can user an online payment service, such as paypal, to accept customer credit card payments easily. Most payment services transfer funds from a customer’s bank account into their service account (such as a paypal account) and then from their service account into your service account when a purchase is made. A drawback to using service accounts is that both the seller and the buyer must set up accounts well before any purchases can be made. Opening a service account usually takes several days for bank account verification.
Merchant accounts present an advantage over service accounts in that your business is able to accept payment from any customer, whether or not they use the same payment service you’ve linked to your site (PayPal is a good example). The most common credit cards, such as Visa and MasterCard, are used by millions of customers–setting up a merchant account allows you to accept payments from anyone who holds these cards.

Resource Nation is your source for small business success providing how-to purchasing guides from credit card processing to pos systems. Resource Nation also helps businesses select and choose vendors in over 100 categories.

It would be wonderful if everyone simply paid their invoices immediately. However, in business, you need to diligently collect and follow up on accounts. Below are some of the common mistakes that can slow down and hinder the process.

1. Making payment application errors. Perhaps the most common mistake is the simple error made by applying payment information to the wrong account or applying it twice to the same account.

2. Not sending invoices promptly. Invoices should be sent upon the completion of either the service or the sale of the product. If it is a recurring invoice, it should be sent promptly at the same time each month. Failure to do so delays payment and suggests to the other party that they have more time in which to pay.

3. Not having a standard policy. From the onset, you need to have a policy in place (and in writing) that makes it clear when payment is due and what the follow-up steps are for late payment. Make sure the customer knows there is a fee for late payment.

4. Not having thorough follow up. Someone from your company needs to follow up when trying to collect payments that are late. This means having the information handy and making repeated efforts to receive payment.

5. Not updating your database regularly. Far too many payments are not collected because the invoices went to the wrong address or the business was sold and someone new is handling payables. Collection mistakes made through the fault of your company should be easy to correct by establishing a smooth process for updating all contact information.

6. Failing to address problems early on. Often, it becomes evident that either payments are routinely late or that you need to be aggressive to collect from a specific account. In these instances, you should address the situation early on. Perhaps another payment schedule will make it easier to receive payments on time. Don't ignore such problems in the making.

7. Accepting the runaround. It's very easy in business today to avoid calls, emails, and other means of communications. Don't allow a company to give you the runaround. Be persistent and reach the person with whom you need to discuss outstanding payment.

8. Failing to apply payments promptly. If you receive a payment and do not apply it promptly and accurately, you run the risk later on of not knowing whether or not payment has been made. This can result in duplicate billing of an invoice that was paid.

9. Failing to lock in a payment date. It is worthwhile to try and lock in a payment date early on in the collection process. This way, if you are still waiting for payment, you have a specific date set and can use that for leverage.

10. Not increasing the level of your collection attempts. Each invoice should indicate that payment is late and attempts to collect should become more frequent. You should be prepared to take more aggressive action if necessary. But make sure you comply with laws applicable to collection practices.

AllBusiness.com is a leading provider of practical business advice and resources for small and medium-sized businesses. Find more information on credit and collections and other finance and accounting topics in our Business Advice Section.
Copyright 2006 AllBusiness, Inc.

1. Understand the basics. Large or small, banks are interested in the same fundamentals—such as cash flow, collateral and the viability of your business.

2. Sell the bank on your company. Provide solid information on its financial history, your business plan, and information about the kinds of loans you need and the terms you want.

3. Look for a good fit. Let prospects know what kind of a relationship you want with a bank.

4. Ask the right questions. Find out where decision making takes place, how many people you will have to deal with, and if the bank is open to meeting with you and your advisors fairly regularly.

5. Commit time and energy to developing your relationship with the bank you choose. Get to know more than one person at the institution so that if your bank is merged or acquired, someone familiar with your business will probably still be there.