Sell Accounts Receivable for Immediate Cash Flow
Waiting for customer payments for receivables can be one of the most difficult parts of the cash flow chain. Common waiting periods for accounts receivable are net 30, net 60, and net 90. Many companies would like to specify net 30, but cannot always do so. Some situations that prevent choosing a tight payment schedule are:
- Competitors offer a longer pay period
- Clients are large companies that specify their own payment terms to suppliers on a take-it-or-leave-it basis
- A major customer segment cannot afford net 30
The Nature of Accounts Receivable
The question is whether the business or the customer will absorb the costs of the time value of money for the receivable period. A company that is fortunate enough to be able to specify net 30 carriers a cash buffer equal to some proportion of the monthly inventory. In contrast, a company with net 30 terms must carry three times the buffer size.
Three other problems are associated with accounts receivable:
- Customers may pay later than the agreed net terms. Businesses can specify a late fee, but this practice carries the same limitations as setting the net terms in the first place.
- Customers can default completely, forcing businesses to write off the uncollected accounts. Unfortunately, they often lose a customer at the same time.
- Businesses may decide that they must employ an aggressive collections strategy on particular accounts. This runs the risk of damaging relations with the customers.
Invoice factoring can provide your business with the flexibility needed to preserve client-relations, and improve cash flows. Entrepreneur’s article, “The 5 Worst Cash-Flow Mistakes Small-Business Owners Make”, provides helpful information on the accounts receivable process, and the potential effects on your business’ cash flow.
Financing Receivables A Strong Solution
Factoring companies can finance receivables in order to solve these problems. They pay an advance on receivable accounts, providing the business with an immediate cash flow. The factoring companies asses the risk of customer payments and asses a factoring rate accordingly. As part of the service, they wait out the net terms while your company has access to the funds immediately. In this way, they tame the receivables part of the cash flow stream. For tips and more information, you may want to read Invensis – 6 Ways To Conquer Major Accounts Receivable Challenges.
If your company needs to streamline their cash flow, consider financing receivables. Contact Universal Funding today by calling us at 800-405-6035 or complete our rate form and get a free consultation.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.
Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay their invoices, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.