“Cash is King” is a saying we’re all familiar with. Successful businesses understand the importance of having cash on hand in order to operate the business day-to-day, fund growth, and meet the unanticipated expenses that arise. In addition to the costs associated with operating a business, cash flow is often cited as a key indicator of the future success of a business. Companies with good cash management practices are more successful, period.
But why “Cash is King for Real Estate Appraisers”? In the appraisal world, it’s no different. Without cash on hand, an appraisal company will struggle to accomplish the most job functions, let alone be able to focus or resource for growth.
So, how can you improve your companies’ cash flow? One simple, yet effective way to do so is to expedite payments on your completed work orders and accessing your cash more quickly through accounts receivable financing or better known as invoice factoring. Standard payment terms can range from 15 to 30 days, and sometimes up to 90 days. When the collection process is that drawn out, many appraisal companies both old and new can struggle to handle unexpected costs or properly prepare for growth. Appraisers also encounter differing terms due to relationships with various AMC’s and lenders, creating challenges with tracking and managing those payment schedules – spending additional time and precious resources on non-revenue generation activities.
Factoring appraisal invoices (also known as invoice discounting) essentially reduces your payment terms to one business day. Factoring your invoices is selling your completed orders to a Factoring Company in order to receive payments more quickly. When an appraisal order is completed, an appraiser submits the invoice to the Factoring Company and in return receives an expedited payment less a small discount.
Payments to appraisers for completed orders are made by the next business day, and sometimes as quickly as the same day. The Factoring Company then collects payment from the Debtor (AMC or Lender) per their standard payment terms. The appraiser is guaranteed to receive payment on approved orders, no longer needs to make collection calls, and minimizes the back-office paperwork often required when collecting payment via traditional means. Thus reducing risk in non-payment situations.
Electing to receive expedited payments provides increased cash flow, helping appraisal companies to grow more quickly and handle costs that come their way. As an additional benefit, Appraisal Companies who factor their invoices also see an increase in efficiencies as their collections process is essentially eliminated and their back-office paperwork is reduced.
