How to Sell Your Invoices to Improve Cash Flow
Maintaining a positive cash flow is absolutely crucial to every business. While it’s fairly easy for large, established businesses to keep up with customers who request net 45-day credit terms (the option of paying invoices up to 45 days after delivery), it can be a massive challenge for small businesses. Offering credit terms allows you to snag bigger clients, but it can also compromise cash flow.
Improve Cash Flow By Selling Your Invoices
One of the ways entrepreneurs solve this dilemma of cash flow is by selling the company’s accounts receivable to a company that buys invoices.
Why Sell Invoices
Selling invoices is a financing strategy primarily used by large companies to decrease time between providing a service and getting paid. This funding option improves cash flow, allowing companies to cover their expenses, while giving clients more favorable terms. It’s faster and more flexible than traditional business loans and easier for acquire for companies with minimal tangible assets.
How Selling Invoices Works
To sell invoices, a business must make an agreement with a factoring company that buys invoices. A process is set up where the factoring company purchases your invoices as soon as a client accepts your service/product, usually with two purchase payments. Generally, companies that sell their invoices do so regularly, leading to better cash flow, greater predictability, and increased chances for new opportunities.
Do I Qualify?
A factoring company can finance your invoices so long as your company is good at paying its agreed upon terms. They will not buy bad debt or delinquent invoices. It’s only possible to sell invoices not tied up in prior liens and judgments.
What’s The Cost
The factoring company buys the invoices at a discount of their face value, depending on criteria such as your industry, your billing methods, and the creditworthiness of your clients. Selling invoices also comes with a small fee, typically 30-day fees of 1.5 to 3 percent that are often prorated.
How Much Time Does It Take
Unlike loans that can take months for approval, selling invoices is relatively quick. As soon as the account is set up, most companies can sell their first round of invoices. Initially, it can take a few days, but subsequent invoices typically get funded the same day, pending their verifiability.
Cash flow and flexibility for your business are only a few steps away. Before heading down to the bank for a loan, take a close look at selling your company’s invoices as a financing option.