Selling Your Receivables - The Pros and Cons
So you’re considering selling your invoices/receivables. You’ve heard about it, maybe even known someone who’s doing it. But you’re not sure if it’s for you. How do you go about making that decision?
Your first step is to define your reasons for wanting to sell your receivables.
Frequently the major reason is immediate cash flow. If you carry your own receivables, you need deep pockets to keep your business afloat until your customers pay their bills. While you wait for your customers’ payments, your cash is tied up, unavailable for your inventory, payroll, utilities, and other expenses.
Or your business may be growing. In that case, you probably need more inventory and/or working capital than your current budget will handle.
Is handling your own receivables taking too much of your time and office resources? Some receivables purchasers will take care of your entire A/R procedures. You simply create the invoices and send them to your receivables handler. Your receivables purchaser sends out your monthly statements, receives payments, follows up with collections on slow pays, and may even create payment plans to fit your customers’ needs.
There are many reasons for considering selling your receivables. But before you start looking for a receivables purchaser, be sure you know exactly what your reasons are. Make a comprehensive list of all the benefits you hope to gain.