Credit Lending for Business Can Help Accounting Firms
Posted on August 20, 2014 in Business Tips
Companies that sell intangible products find it much more difficult to collect on their invoices. Staffing companies, legal firms and accounting firms offer services that have no tangible representation. In most cases, the firms can point to results such as legal documents and financial filings as proof of services. But when a company bills based on hours or based on flat-rate service fees, then it becomes difficult to collect on those past due invoices.
Accounting firms find it especially difficult to collect on their invoices because of the variety of services that an accounting firm offers. In some cases, the firm may offer flat rates for the services it provides, such as filing tax forms and completing annual corporate paperwork. Some services, such as a payroll audit, would require an hourly fee that is billed in an ongoing manner throughout the project. When the project is over, the accounting firm takes it on faith that their client will pay the bill.
Certified accounts and professionals who work in an accounting firm get paid salaries that are in line with their experience and their background. According to Salary By State, the median salary for an accountant in the United States in 2010 was $61,690 per year. When you multiply that median salary by an office full of qualified accountants, you can start to see how those costs begin to add up.
An accounting office also has overhead to cover such a support staff, office equipment and office space. It is expensive to run a successful accounting office, and it gets even more expensive when customers do not pay their invoices. Past due invoices cause an accounting firm to borrow money just to make their obligation. The majority of the costs associated with running an accounting firm are recurring payroll costs. The firm has to make those payments each and every pay period if it wants to retain the talent that allows it to do its job.
Instead of borrowing money from a bank or using any kind of financing that adds money to the firm's debt, the smart answer is to get involved with credit lending. An accounting firm knows full well the costs associated with borrowing money to pay the daily operational obligations for the firm. The ongoing interest debt associated with bank loans can become a burden to the firm's bottom line and the money borrowed is also a debt added to the firm's expenses. It is a process that puts the firm deeper and deeper into debt, but it is one that can be reversed through credit lending.
A credit lending organization pays the accounting firm for those outstanding invoices and significantly improves the firm's cash flow. Instead of paying recurring finance charges and interest debt, all the firm has to do is pay a single lending fee for each invoice. The process offsets the potential financial damage that a stack of past due invoices can do to the company's financial situation.
When an accounting firm contracts with a credit lending organization, the lender also takes on the role of accounts receivable funding. The accounting firm can focus its efforts on supplying quality services to its clients and attracting top accounting talent to grow its business. The firm can also rely on its cash flow to be able to meet payroll and other expense obligations on a regular basis.
An accounting firm has a difficult time collecting on invoices for intangible products. But when an accounting firm decides to do business with a credit lending organization, then the credit lender can take care of the firm's invoices, improve firm cash flow and take over the responsibilities of collecting on invoices. It is a reliable way to solidify firm finances and make sure that the firm always has the money it needs to meet payroll and exceed client expectations.