Selling Accounts Receivable

Written by Patricia Tunstall
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Deciding to sell accounts receivable may not be such a tough decision if because a business is in dire straits at the time. Stymied by a lack of working capital and cash flow, the business must break the hold that accounts receivable have on the management of the business. When lack of cash is preventing acceptance of orders, factoring may be the answer.

Why Factor?

Once the logjam of piled-up invoices is broken by factoring, a business can move to reach its potential for growth. By obtaining cash to put in the bank, you can offer better terms--which makes you more competitive--to prospective customers. You may not be able to offer a better price, but many customers are as interested in the terms as they are the price. If you can offer 90 days when your competitor can only offer 30 days, you will be in an excellent position to gain business.

Your credit should improve because with cash in the bank, you can pay your own creditors early or on time. The risk that was threatening your business is eliminated, and your credit will be unblemished. Factoring creates no new debt, yet improves your cash flow so you can take advantage of all kinds of offers from your suppliers based on cash payments. Discounts are always available for large-volume purchases, and now you can obtain these discounts for your business.

Several of the benefits of factoring have to do with the burdens factors take over: collections and invoice processing. Professional collections are much more effective, and they remove the chore of dunning customers. Because your accounts receivable became too great a part of your business, having factors set up efficient processing systems brings discipline and control to your accounts receivable.

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