Selling Accounts Receivables: 3 Things You Should Know

Paid and Unpaid. Two binders on desk in the office.

Tips for Selling Your Unpaid Invoices

Accounts receivable financing allows your business to sell open invoices to a factoring company. Invoice factoring is a quicker and simpler process than a conventional business loan, so your business can get access to urgently needed cash in a much shorter period of time than from a bank. There are a few variables that effect the process of financing your company’s receivables that you should understand if you are interested in this funding solution. Here is an overview of the application and approval process and how factoring rates are determined when your business decides to sell open invoices.

1. Rates

We will determine and propose the factoring rate and advance rate for your business, which gives you a fuller picture before you start the application process. Universal Funding will base your rates on a few variables:

  • Your sales volume and invoice amounts
  • Trends in your customer payment cycles
  • Credit standing of your customers
  • Current climate of your industry

2. What You Need to Apply

Universal Funding has a one-page application that is fast and easy to complete. In addition to the application, we also request that you provide:

  • Your company’s most recent accounts payable and accounts receivable aging reports
  • A sample invoice
  • Your company’s previous year’s taxes

3. The Approval Process

Approval for factoring is much faster than a business loan since the finance company is purchasing an asset, your invoices, instead of structuring a loan. Your invoices and the customers associated with them are assessed quickly.

There are a few other elements we will need to consider for specific cases, but they do not necessarily mean your business cannot sell invoices. If you have tax issues, little or no credit history, or if a lender already has the right to your accounts receivable as collateral, you still can be approved for invoice factoring. Since our underwriting department is in-house, the application process is swiftly moved to the Board for review. Once approved, you will also need to show business registration papers, such as your Articles of Incorporation or your DBA filing.

How Does Selling Invoices Benefit My Company?

In today’s economic climate, it can be a struggle to acquire the necessary working capital to bolster a healthy cash flow or to take advantage of new business opportunities. Traditional methods of acquiring capital including bank loans and lines of credit can be insufficient or simply not available. A company in this situation has an excellent alternate solution: consider selling the company invoices to a factoring company.

As traditional financing methods become harder to attain, the popularity of invoice factoring increases. Regardless, factoring is not a new tool. It has existed as long as the custom of extending net terms. In this arrangement, a funding source known as “the factor” assumes the risk of outstanding accounts receivable and provides an advance of funds available immediately to the client company.

Healthy invoices, that is, accounts that are current hold the most value and have the greatest weight at determining the lowest rate. Nevertheless, accounts that are 30 or 60 days old are still good candidates for factoring. Invoices older than 90 days are generally considered too much of a risk and enter the territory of a likely bad debt, but a factoring company will look at who your customers are to assess if there is a risk or if you have reasonable terms set-up with them. A company with a recurring set of invoices with reliable customers paying, is an excellent candidate for invoice factoring.

Related: 10 Ways to Increase the Working Capital in Your Small Business

Access to Immediate Working Capital

For those looking for an alternative way to fund business operations or expand your business, selling invoices for cash provides a way for companies access immediate working capital. The process is fast and easy and doesn’t require you to have great business plan or personal credit or have a specified time in business. Accounts receivable financing is not a loan. It is a sales transaction that allows you to sell your invoices in exchange for instant funding. There are no restrictions on how you choose to use the money and there is no repayment. This means you have the freedom to use the funds for whatever your business needs: purchasing new equipment, fulfilling large orders, or just covering day to day expenses and not have to worry about adding new obligations to your monthly operating budget.

Related: Is Invoice Factoring Right for Your Business?

What Are the Concerns of Factoring?

Some companies are wary of factoring because they lose control of some of the collection process.  After you send out an invoice for goods or services sold, Universal Funding will send bi-monthly statements and will work protect your relationship with your customers. We know that if you don’t get paid, we don’t get paid, so it is in our best interest to maintain a respectful relationship with your customers.

Some factoring companies may not accept certain invoices because of the lack of credit worthiness of the customer, this does not take the decision out of the hands of the client who is still free to deal with high-risk customers outside of the factoring process.

Another concern is that factor providers are not necessarily collection agencies. Some factoring companies do not assume the responsibility to collect for bad debts. However, with a credit-healthy customer base, a company can avoid having to deal with this situation. Universal Funding will provide screening for any new clients to make you aware of any potential risks of taking on a new client.

Related: The Pros and Cons of Invoice Factoring for an Expanding Business

Learn More About the Invoice Factoring Process

Universal Funding can answer your specific questions about invoice factoring and what you will need to get started on the approval process. Fill out our online rate form or call us at 800-405-6035 today to request a no-obligation consultation.

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