The biggest problem many organizations face today is not being able to get cash flow quickly enough to pay for expenses. Selling your account receivables to factoring companies may be a viable solution to quickly get the money you need.
Accounts receivable factoring provides cash flow finance against unpaid invoices. Regardless of their current financial condition, credit rating, or time in business, businesses selling to other businesses on terms may be eligible to sell accounts receivables to a factoring company.
Consider factoring when you need reliable and growing access to short-term working capital. Typical factoring clients have previously been declined credit by a bank and have one or more of the following characteristics:
- Rapid Growth
- Poor Personal or Corporate Credit
- Operating Losses
- Highly Leveraged
- Insufficient Cash Flow
They also belong to diverse industry niches such as:
- Construction contractors
- Government contractors
- Security agencies
- Staffing agencies
- Commercial services
- Product suppliers
- Technology companies
- Manufacturing facilities
- Trucking and transportation enterprises, and many others
Why do companies sell their receivables?
Selling accounts receivables helps them cover temporary cash flow needs while they wait for their customers to pay. Typical uses include inventory purchases, payroll funding, capital expenditures, and the payment of vendors and other miscellaneous expenses.
What are the benefits of selling accounts receivables?
Factoring offers several advantages to well-established and also to small businesses; here are a few of them:
- Available to most industries
- You don’t need to wait for your customers to pay your invoices
- It eliminates funding problems and improves your working capital in a short time.
- You can choose what clients and invoices to factor
- There are no limitations to the use of the cash advanced. You are free to pay for any expenses, payroll, inventory, or to buy any other assets that you want.
- You get a quick cash flow boost and receive money in just hours.
- You get help with receivable management and collections.
How to sell your accounts receivable to a factoring company?
Selling account receivables is a very simple and straightforward process. Here’s how receivable factoring works:
- You complete a quick application and after approval sign a factoring agreement with a factor.
- Right after delivering goods or services to your client, you submit your invoices to your factor to get an immediate cash flow boost.
- The factoring company advances you the previously agreed percentage value, usually 80 to 90%, of the invoice within 24 hours.
- When the invoice is due the factoring company collects the payment, deducts a small factoring fee, and then pays you the balance of the invoice amount.
- You keep repeating this factoring process as long as you have cash flow needs.
What do you need to qualify for factoring?
These are the minimum requirements to sell account receivables:
- Sell to other companies giving them 90-day payment terms or less
- Have customers with good to high credit rating
- Meet the typical minimum requirements of $5000 in monthly sales
What do you need to do to start selling account receivables?
After your request has been approved and an invoice factoring contract is signed, we’ll set up your factoring account and you’ll be ready to start selling account receivables and improve your cash flow in days.
How to find the best accounts receivable factoring company?
Accounts receivable factoring is a value-added service and you should not choose your factor based on cost alone. We not only provide our invoice factoring customers a working capital facility that grows with their sales, but we also offer credit monitoring help as an additional factoring benefit.
To control risk all factors monitor the status of the receivables purchased. Some of these factors even use third-party vendors who follow late customers and harass them to collect the debt. We don’t do that!
Be careful when considering what factor to pick. Getting cash flow funding fast is important but it’s also crucial to protect your customer portfolio. When deciding what receivable factoring company to deal with look for one that can deliver credit risk evaluation and collection monitoring services in a timely, professional, and courteous manner.
At Gateway Commercial Finance, we have perfected our factoring program guaranteeing timely funding of your invoices without disturbing your customers.
Our factoring company uses advanced communication guidelines and state-of-the-art technology to supply your working capital when you need it while protecting your company’s reputation and customers ‘privacy.
Typical FAQs regarding selling account receivables from potential clients
Is selling accounts receivables a better option than receivables financing or a bank loan to cover cash flow needs?
A bank loan is a no-brainer option when you have money issues but many companies do not qualify for a variety of reasons. In this case, you should consider the other two funding options to access cash flow.
Receivable financing is similar to bank financing:
- Like a short-term bank loan receivable financing improves your business cash flow.
- Both solutions add debt to your financial statements.
But, with receivable financing, you’ll pay a much higher interest rate and fees to get money than with a bank loan.
In summary, receivable financing it’s a loan for a pre-defined time that uses an asset (your receivables) as collateral. When you enter a receivable financing agreement you remain as the owner of the receivables thereof it’s your responsibility to collect the money from your customers and make the payments to the financial institution.
Now let’s consider the benefits of factoring.
Contrary to the two previous cash flow solutions, selling accounts receivables (a.k.a. factoring) does not create additional debt. Your factor buys your accounts receivable, advances your capital, and then waits for the payment to arrive.
Once the cash is deposited the factoring company charges a discount fee based on a pre-agreed discount rate and deposits your balance right away. Factoring is not a loan but the purchase of your receivables at a discount.
If you don’t want to add debt to your ledgers selling accounts receivables is a much better cash flow financing option than financing receivables.
Do startups qualify to sell account receivables?
We serve growing startups and small businesses regularly. No matter how many years you have been in operation, if you have outstanding receivables issued to creditworthy customers we can help you to increase your working capital and eliminate cash flow problems almost immediately.
Please submit a quick factoring quote request and you can be approved for invoice factoring in hours.
Can I sell my accounts receivables to pay for purchase orders?
We provide purchase order financing (PO finance) services on a case by case basis.
Do you have any factoring videos and articles to help me learn more?
We have tons of factoring resources on this site and social channels available for you. You can find videos on YouTube or read the following in-depth articles on our website:
- Learn what invoice factoring is and how factoring works
- A detailed explanation of the cost of receivable factoring, including calculators
- About factoring advance rates and how much cash do you get upfront when the factor buys your invoices
- Find out how to choose the best factoring company for your business
There many more related articles and other resources about selling accounts receivables in the main area of our site, please check it out if you wish to learn more about factoring.
Why should you consider working with Gateway Commercial Finance?
Our factoring company has been providing cash flow solutions to customers all over the US for over 14 years. We have hundreds of happy clients doing businesses in a wide variety of industries such as construction, staffing, farming, manufacturing, government supply, bookkeeping and accounting, and many more. We are glad to provide factoring references upon request.
We are one of the very few factors that put you in touch with our managing director from the initial contact. You’ll never talk to third-party intermediates or brokers…our promise.
You’re careful in your business decisions, hiring key employees, buying from strategic suppliers. Funding your organization should be no exception.
Take the time to read our articles or contact us today, and see why our commercial finance company is an ideal factor to help your business grow. We’ll work hard to earn your trust. Call our toll-free phone at 1-855-424-2955 or fill up a free Factoring Quote Form and our managing director will be in touch with you right away.