Selling accounts receivable at a discount is otherwise known as invoice factoring or accounts receivable finance. It’s an alternative finance product for B2B businesses that can help them make it through a rough patch, or scale their operations. Here are some reasons why you should consider selling accounts receivable.
1.) Easier to obtain than a loan
Selling accounts receivable at a discount is much easier to do than get a business loan. Infact, more than half of small businesses in the United States have applied for business loans, and 45% of those businesses have been denied more than once. In summary, it’s getting harder and harder for small and medium sized businesses to get the capital they need to expand.
Though traditional financing can be out of the question, accounts receivable financing is an alternative that most businesses can qualify for. This is because it is based on your client’s credit and business profile rather than your own. You can also pick and choose which receivables to sell, which can help you choose the right ones that will get you approved for factoring.
2.) It’s like an insurance policy on your cash flow
Using different factoring services such as spot factoring can be a safety net for your business in the case of unexpected cash flow problems or seasonality. In a spot factoring arrangement, you aren’t bound by any minimums or contract lengths. This means that you can sell your accounts receivable when you need. If money’s tight one week, you can sell a receivable or two. This wouldn’t be possible with a traditional bank loan, as you’d be required to borrow a fixed amount and pay it back monthly with interest.
Related: What is Spot Factoring?
3.) Outsource your accounts receivable department
If you decide to begin selling accounts receivable at a discount to a factoring company, you can effectively completely outsource, or reduce your internal A/R department. If you are a small business and this person is mainly you, it can allow you to focus on your core business needs instead of mailing invoices and chasing down delinquent customers.
Though factoring can be expensive, the savings and potential business growth that can be achieved will likely outweigh these costs.
4.) A quick source of funds
In many cases, you can get funds in as little as 24 hours when selling accounts receivable. This can be a lifesaver if unexpected costs arise. The only other way to get cash for your business in as little time is to use a business credit card, which is difficult to qualify for and equally as expensive as factoring.
5.) It will help fuel your growth
The best way to grow a businesses is through cash flow. But it you are waiting 30, 60, or even 90 days to get paid, you don’t have any cash flow to work with. It’s a vicious cycle that is almost impossible to escape. By selling invoices at a discount for a short period of time, you can get an initial cash flow boost to work from that will put you ahead of the curve.
By using the service as a tool, and maintaining strict accounts receivable policies in the future, you can finally position your business financially in a way that will fuel growth.
The Bottom Line – You Should Be Selling Accounts Receivable For Your Business
Selling accounts receivable at a discount will help your business in many ways. When it’s difficult to obtain a traditional business loan, accounts receivable financing will help you obtain the money you need to sustain, expand, and grow your operations. Can you think of any other benefits? Share them in the comments below.