In today’s market, there are many reasons why a company would want to sell their invoices. While small businesses are considered the backbone of our economy, they are also in a position where they are not only competing with many other companies, but also much larger companies.
With this kind of competition, it’s becoming increasingly difficult to balance business strategies, employee management, payroll, client delivery, and so much more. More and more companies are turning to selling their invoices as a way to ensure they have proper cash flow, which allows them to continue operating, meeting payroll, etc.
In this article, we are going to go through why you should or shouldn’t sell your invoices to a factoring company.
In our experience, every business we speak to about invoice factoring has a different pain point. But, their pain points can all be solved by having guaranteed cash flow. Let’s start by discussing what invoice factoring is.
What Is Invoice Factoring?
Invoice Factoring is ultimately a cash flow solution. It is a kind of working capital that is used specifically for temporary staffing companies. It is a service that allows staffing companies to have access to between 90 and 95 percent of their outstanding accounts receivable upfront so they can compensate their staff and pay for any other expenses they have incurred.
Companies use Invoice Factoring because regardless of if their clients pay in seven days or 90 days, the cash is there for them to meet payroll requirements. By using Invoice Factoring in your overall business strategy, you can grow your company without the financial limitations that come with having available cash for payroll.
Why Do Companies Sell Their Invoices?
Like we said, businesses all have different pain points in running their business, different stresses and different needs. However, they can all be solved by having the cash flow they need.
Here are ten very common reasons why companies sell their invoices.
- Businesses require consistent cash flow.
- Companies want credit protection.
- Employers want to have regular ongoing payroll funded.
- They want to import or buy more inventory.
- They want to fulfill a large purchase order.
- Quick growth is happening or expected and they're going to need funding quickly.
- Business owners don't want to give up equity in their company.
- Closing and funding can happen very rapidly, sometimes in less than two days.
- It's a start-up company with no history in the banking world.
- They're seasonal business and they need to smooth out their revenue cycle.
Whether one, or even a few, of these pain points sounds familiar to you, selling your invoices could be a viable option for your business.
Perhaps you’ve experienced the negative impact of a client being late to pay their invoice that you needed to be able to pay your employees. This is a large pain point for many companies. With talent shortages becoming increasingly difficult, it’s crucial that you have the cash flow to be able to compensation your employees on time and in full. Otherwise, you’re at risk of having employees leave your company and spread the word about your inability to pay your employees. Not to mention the unwanted cost of now having to replace the individual that left.
How To Get Setup With A Factoring Company
If you’re thinking that you might want to explore invoice factoring as an option for your company, it’s good to note that qualifying for a factoring line of credit is a much simpler process than qualifying for a line of credit with a bank. You fill out an application form that gives the factoring company insight into a few key facts they need to know before choosing to approve or deny your application.
The key things that factoring companies look at when considering an application include:
Factoring companies main concerns are not how many years a company has been in business or what a business owners credit score is. The main concern is that the invoice factoring company is buying invoices that will get paid. For this reason, factoring has proven in its different forms over the centuries, that it is a very valuable tool for a growing business that needs a finance partner to improve cash flow.
Here are a few key points about the application process.
- We have a quick and easy online application that can be filled out and where select documents can be uploaded.
- Once we agree to the basic terms, we will provide you with a contract to sign.
- We can go from start to funding sometimes in as little as a few days to a week!
If you have any more questions, please reach out to anyone on our team.
How to sell your invoices
Here is a step-by-step breakdown of how the sale of an invoice process works once you are setup with a factoring company:
The seller of the invoice gets 80% to 95% of the amount of the factored invoices within 2 to 24 hours of selling the invoices. For example, if you sell $500,000 worth of accounts receivables and get an 90% advance, you will receive $450,000.
The invoice factoring company keeps the remaining 10% or $50,000 as security until the receivables or payment from the invoices has been received.
The factoring company collects the receivables or collets on the outstanding invoices over a 30 to 90 day period generally.
Once the payment has been received, the factor pays you, (the seller of the invoices), the total amount collected less the factoring fee, which typically runs 1% to 3% of the total payments. The quality of the receivables and the length of time it takes the sellers client to pay determine the cost of the factoring fee. For example, reliable payers who pay within 30 days may only incur a 1% fee or even less, while slow paying customers who take more than 60 days may be assessed a 2% or 3% fee.
The factor fees are all determined ahead of time and agreed upon when getting set up with the factoring company so you as the seller will be able to determine what your cost will be depending on how long your different clients take to pay.
This process happens very seamlessly and takes very little effort on the part of the seller of invoices apart from uploading or emailing over the invoices they would like factored.
Should You Sell Your Invoices?
No matter your niche, competition will always be there. Whether it’s competition in terms of winning business or competition with holding on to your talented employees. The competition is fierce.
As a business owner you have dozens of balls in the air. You’re managing your staff, working on your business strategy, meeting payroll, all while making sure your customers are happy. Selling your invoices has the ability to decrease the stresses of being able to make payroll, pay expenses, purchase more inventory, and even fulfill customer orders. Cash flow is the root cause of many business stressors and by selling your invoices to a factoring company, you can get back to what you love doing, which is working ON your business versus working IN your business.
Want To Sell Your Invoices?
If you have any further questions about selling you invoices, feel free to reach out to us here at Meritus Capital anytime by email at firstname.lastname@example.org or call us toll-free at 1-877-648-3709. We have been providing factoring services to businesses across Canada and the U.S. for almost 20 years!