Why You Should Sell Your Receivables
Your company might sell products or services to customers only to send them a bill later. This is referred to as an invoice. Most of the time, the customer will have a set amount of time to pay off the bill, which is usually set at 30 days. Waiting weeks or months to get paid can slow down your stream of cash flow, so you need to optimize your accounts receivable so that you have a reliable amount of money always coming in. In some circumstances, it is in your company’s best interest to sell invoices to a third party.
Cash flow problems affect businesses of all sizes. However, they can really be detrimental to small businesses that might not have a lot of customers yet but still need to expand rapidly. The problem that arises is that you still need to pay for the service or product and give it to the client. However, the client has time to pay off the debt. While you are waiting 30 days to get paid, you still need to pay for other expenses. If you are not careful, you could run out of money. The problem only escalates if you have customers who default on their payments.
Selling your accounts receivable to a factoring company provides you with money right away, so you are not waiting around to get paid. There are plenty of factoring companies out there who will purchase your invoices at a price lower than what the invoice is worth. While you might be getting paid a little less, it is often more beneficial to get some money right now as opposed to a little more money in the long run. At this point, the factoring company is the one who will contact the customer to get paid.
This offers another advantage to your business. If you retain your invoices, someone at your company will be responsible for contacting customers to ensure you get paid in a timely manner. You may even have to hound a few clients who have taken more than 30 days to pay. Once you sell your invoices, you do not have to worry about that. You can focus your resources on other matters rather than deal with customers you have already provided a service for.
You should see what terms you can get from factoring companies near you to see if selling your accounts receivable is right for your business. Many companies find it to be advantageous, so there is a good chance it will benefit you.