Why Your Small Business Should Sell Its Receivables
A thriving small business needs a steady dependable cash flow. When the cash flow becomes irregular, the business suffers. A number of factors can contribute to an insufficient cash supply, including long payment terms and slow-paying customers. Here are some reasons why selling your accounts receivables can help you out with this.
Boost Cash Flow
While you are waiting to get paid, you still have to cover your business expenses. When you sell your receivables, the factoring company waits for your clients to honor their invoices, but you receive the funds you need. You generally receive payments in two installments. Immediately after you submit the receivables, the factoring company sends you approximately 80 percent of their value as an advance. When your clients pay in full, you receive the other 20 percent, minus the factoring company’s financing fee. This arrangement enables you to always have the cash available to meet your company’s needs.
Allow Longer Payment Terms
Selling accounts receivables to a factoring company sets you free to offer payment terms of 30 to 60 days to larger customers that insist on them. Despite these longer terms, you can have the confidence that your company will have the cash it needs to maintain and continue to grow your business.
Obtain Quick Approval
Instead of selling your accounts receivable, you can opt for a more traditional financing method such as a business line of credit. However, you must be prepared to go through the time-consuming and convoluted application process, and you face the possibility of being turned down if your company does not yet have the collateral or credit score required. On the other hand, factoring companies generally respond quickly to applications, and the creditworthiness of your customers is more important than your company’s credit score. Additionally, increasing your line of credit through traditional financing involves repeating the entire application process, while factoring lines of credit grow as your qualified sales increase.
For more advice on factoring accounts receivable and other aspects of small business finance, contact Trihawk Capital at 732-784-1808.
