Selling Accounts Receivable To Finance Your Business
More and more businesses are selling their accounts receivable in order to inject immediate cash flow into their accounts. Rather than wait for customers to pay their outstanding invoices, or take out a loan or line of credit, companies are able to get rid of their unpaid invoices at a discount in return for quick capital to keep your business operating. Around since the early days of banking, invoice factoring has withstood the test of time as a great alternative method to financing your business when other options may not be available or ideal.
Selling accounts receivable at a discount is a great way to inject some much needed capital into your business whether you need to fund your payroll, pay for services or equipment, or even build venture capital to grow your company. It is especially attractive to businesses who cannot, due to a poor credit rating or a host of other reasons, get traditional loans. Even if you have a good credit past, you may simply be a victim of the times as the turbulent economy has made many banks much less willing to lend money.
Invoice factoring is also most cost effective than other options that are available. In particular, invoice discounting is another method that is used by companies to get cash flow into their business. This method is very similar but instead of “selling” your invoices, you are taking out a loan and using your outstanding invoices as collateral for the loan. This is another method used by businesses who cannot get other loans but the interest rates are costlier than factoring discounts.
The reason that invoice factoring is not technically invoice “selling” is because you are still liable for any unpaid debt that is still outstanding after an agreed upon period of time. This period is usually around three months. If the invoices are unpaid at that point, you need to pay the remaining sum. Otherwise, factoring is a very attractive option for many businesses who need capital today, not in a few months.