Selling Your Receivables for Quick Cash

Many suppliers and retailers are small-size businesses, and they usually carry heavy cash burden due to the scarcity of conventional loans or lines of credit. Furthermore, most of these small businesses usually accept their customers' request to provide lengthy payment terms. It significantly affects these businesses' cash reserves, and they are forced to take out whatever little funds available to meet the operational expenses. This fund could otherwise have been used for growth or hiring. However, you may have a significant number of invoices against which customers' payments are due. These invoices or receivables can be quickly converted into cash through invoice factoring service.

In the current economic scenario, over 70 percent of small businesses are giving their clients extensions on payment terms, even though it aggravates cash crunch for their business. It has been observed through a recent survey that almost a quarter of small business owners feel anxious to make collection calls, even when payment terms go beyond 30, 45, or 60 days etc. Many of these entrepreneurs have even considered closing their businesses due to severe cash crunch of working capital. To resolve this situation, business owners need to think beyond the traditional lending from banks and consider A/R financing or factoring to meet their cash flow needs.

Small and mid-sized business owners can avail services of a factoring company that will buy their invoices and provide immediate funds as an advance. Usually, the amount of advance paid ranges between 40% and 90% of the invoice value. A factoring company pays on the basis of:

1) Aging of the invoices;

2) Number of invoices to be used for factoring, and

3) Credit worthiness of your customers.

After the factoring company pays you the initial amount or advance, it will subsequently collect the same amount from your customer. Thereafter, the company will pay the remainder of the funding after deducting a discount fee (typically between 2.5% and 7.0%).

Invoice factoring service is becoming increasingly popular among small and medium businesses. One of the primary reasons why businesses incur significant debt is because their customers want extended payment terms beyond 15, 30 or 45 days. It puts additional liability on having a regular cash flow and meeting payroll commitments. Receiving funds through factoring services revive cash flow into a business and fulfills short term business obligations.

Following are the benefits of A/R factoring:

1.Getting Quick Finance

Invoice factoring is a quick way of getting funds that are being used by businesses experiencing a cash crunch.

2.Using up working capital for business growth

Most of the businesses have large amounts of their working capital tied up in inventory. A/R financing allows them to free up the working capital and use it for business growth.

3.Passing off the collection responsibility

The factoring company takes up the responsibility of collecting invoice amounts from your customers. It saves you time and effort to follow up on payments, and you can focus on more productive activities.

If you need urgent cash for your business without taking up additional liabilities, then A/R financing could be a viable option for you as an alternative source of business financing.