The Advantages To Selling Receivables For Small Business

by | Oct 2, 2015 | Business


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Being a small business owner can sometimes seem like a very lonely and frustrating position, especially if you have business to business or B2B sales. These types of sales typically include products or services you sell to another business, but that business may not pay you for 30-60 days, sometimes even as long as 90 days.

An Overview

Selling receivables, also known as factoring, is a very simple, streamlined option for small businesses to gain access to funds that are pending payment on these invoices. It is not a loan; rather it is funding based on money to be paid by verified customers of your business. The factoring company, once you sell the accounts receivables, funds a percentage of the total value of the invoices, up to 80% or more, and then, upon payment by your custom of the invoice, deducts their fees and provides you the remaining balance.

If this sounds too good to be true, think about the process in terms of how you do business on a daily basis. Our business is really not that different, we are just handling a much larger scale of transactions.

The Model

When you extend credit to your customer on that 30 or 60 day basis you are actually becoming a banker for your client. However, you don’t get the privileges of charging interest or fees, and you also don’t have access to that money either.

To offset this, you may offer your B2B customers the option to use a credit card. In this case, the credit card company actually provides the same service as a factoring company. The credit card company immediately deposits the cash into your business account, less their fee for the service.

Then, the credit card company collects from your buyer, assuming all the risk should the credit card holder default on the payment. Today it is estimated that the typical consumer has about $15,950 in credit card debt, which is money small businesses are accessing before the credit card companies have been paid.

When your small business is selling receivables, the same model is used. You will sell some or all of your current invoices to the factoring company, which provides funding up to a percentage of the value. The factor then assumes collection on the invoicing, and you have the immediate cash to run your business.

While selling receivables may seem like a new model, it is one of the oldest forms of business financing in the world today. Business Name can help small businesses with cash flow problems without any risk.