Why Selling Accounts Receivable is Right for Your Business
Are you struggling to maintain your cash flow? Are cash flow gaps impacting your day-to-day operations? Well, you’re not alone.
Most small and medium-sized businesses find themselves in the thick with cash shortages all the time. Subsequently, these shortages take a much bigger toll on their day-to-day operations.
When you find yourself in a similar situation, you might think of getting a business loan from a bank to fill the cash flow gap. However, it would take weeks to approve with stringent requirements and a pile of paperwork. The entire process is outdated and painful. Moreover, the bank down the street where you already have your business account is hesitant to fund a small businesses like yours.
So, what do you do?
You sell your accounts receivable.
What Does Selling Accounts Receivables Mean
Selling receivables is a type of alternative financing option. These invoices are paid by a third-party, factoring companies at a discount, for an immediate payment. Business get the funds right away and resolve their liquidity issues.
A small business instead of proving itself creditworthy, proves its customers’ creditworthiness. In most cases, those customers are giant businesses with extended payment terms.
The Problem of Extended Payment Terms
Small businesses who sell their products/services to commercial clients have to offer extended payment terms. Most large clients demand such payment terms as a condition of doing business. Most commercial companies take 30 to 60 days. For small or medium sized businesses, it significantly impacts their cash position. Either you want to pay your employees or just grow the business, unavailability of cash can strip you of opportunities.
However, the payments are relatively secure. That is where factoring companies come in as a lender, and provide an option to buy your receivables at a fee.
But how do you know if that would be a smart financing decision for your business?
4 Reasons Why Selling Accounts Receivable is a Good Idea
There is no denying that cash flow problems affect businesses of all sizes. Managing the working capital and the undesirable cash flow gaps are prominent ones, especially if the business does not have sufficient reserves. While you attempt to improve your slow-paying receivables by deploying different techniques, selling accounts receivables has increasingly become a popular option in various industries.
Here are key reasons why selling accounts receivables is a good idea for your business:
Improved Cash Flow
Like most small businesses, if you are waiting for a month or two to get paid, you should sell the receivables. Worried about not getting paid fully? Consider the fee as a cost. Getting paid right away on your account receivables will eradicate your cash flow woes and provide you with new business opportunities.
If your invoices are paid instantly, what would you do with that cash? Most will grow their business as a longer term strategy. Cash flow gaps restrict the opportunity for the small business to grow. The flexible financing option will allow businesses to increase sales and not be stuck in a rut.
Businesses that sell their receivables eliminate the need for assigning resources to secure conventional loans that require significant paperwork. Fintech lenders enable faster process, efficient decision making, and seamless experience – through an online platform.
Improved Credit Rating
Sale of accounts receivables means that your business has stable cash flow to support operations and pay credit on time. This early cash influx positively reflects on the financial statements and the ability to repay credit. Continuous influx of cash in exchange for your accounts receivables can also let you take advantage of early payment discounts.
How to Sell Your Account Receivables?
The process of selling accounts receivable to a factoring company is straightforward. For a Fintech company, factoring process is even faster. FundThrough allows tech enabled factoring where your invoices can get funded in as little as 24 hours.
But how do you know if you qualify for factoring?
How to Qualify
Accounts receivable financing is available to all company sizes, including start-ups. For your business to qualify you need to particularly show your customers’ ability to pay. Here is how:
- Your customer needs to have a good credit history
- The invoice you want funded must be paid with net-30 and net-60
- Your customer must be free of liens or alarming liabilities
Most businesses qualify for such factoring but are unaware of the alternative financing. Talk to one of our representatives to find out if selling accounts receivable is right for your business.