Sell Receivables

Written by Jacey Harmon
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Businesses that utilize invoices will often experience fluctuating cash flows. Invoices are typically due in 30 days, yet some clients do not pay the bill for up to 90 days. These cash flow variances can play havoc on a rapidly expanding business. The business may need cash now to expand, but capital is tied up in the invoices waiting to be paid. Selling the invoices for immediate cash is a viable option for a business to consider.

There are several advantages for a business that decides to sell their invoices. The immediate cash can help the business to purchase or lease equipment. The selling of receivables does not need to be agreed upon by any bank board, as it is not a loan. Since the money is not a loan, it does not create any debt on the balance sheet. It will reduce the need for a business owner to seek out alternative sources of capital, such as venture capitalists, that would require a stake in the company.

How the Receivables Process Works

Selling your receivables requires you to request bids from funding firms. The firm will often pay a percentage of the invoice immediately, typically 70 to 80 percent. The rest of the total will be withheld in reserve. Fees for providing this service typically will range in the three to five percent range.

The strength of the business's clientele will determine if selling receivables is a viable option. Businesses that provide large invoices to strong, credit-worthy clients are likely to have a better chance of selling invoices. Federal, state and local governments are clients that a business would have an easy time selling the invoices. Business to business transactions are also more likely to be funded than those that deal with individuals.


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