Can I Sell My Unpaid Invoices for Cash?

Last Updated November 14, 2024

Unpaid invoices hinder the day-to-day operations of small businesses across the country, as only 55% of B2B invoices are paid on time.

While 54% of small businesses have come to terms with late invoice payment being a norm, this doesn’t have to be the case for your company. Many business owners have found a way to navigate this challenge by finding alternative funding solutions and selling unpaid invoices for cash. This process is known as invoice factoring.

Read on to learn how to sell your unpaid invoices and improve your business cash flow without ridiculous fees or tedious processes.

Benefits of Selling Your Invoices

Selling your unpaid invoices comes with a few advantages. Below are some benefits of selling your accounts receivable:

• Receive a quick cash advance to augment cash flows and keep your business running
• Cover business expenses such as the purchase of raw materials or staff payment
• No minimum credit score is required to factor your invoices, unlike traditional financing options such as bank lines of credit
• Approval is quick and easy
• Assistants with managing your receivables (particularly with the collections process)
• Factoring is considered a no-doc business loan, with far less paperwork than some other common funding solutions

Disadvantages of Selling Your Invoices

While there are many benefits to selling your unpaid invoices for cash, there are also some drawbacks, as we outline below:

• Factoring fees can lower your profit margins
• Working with a third-party can have a negative impact on you customer-client relationship if the factoring arrangement is not communicated properly
• Potential for hidden fees if you work with an independent factoring company

This last bullet is particularly important. Theoretically, anybody could start a factoring company. Therefore, it’s crucial to partner with a bank-backed factoring company rather than an independent company. Bank factors are federally regulated and FDIC-insured, meaning there’s less risk and they’re not going to be the predatory lender that an independent company could be.

Selling Unpaid Invoices to a Factoring Company vs. a Collections Agency

A factoring company is a company that purchases outstanding accounts receivables while a collections agency is a company that recovers due funds for creditors.

Selling unpaid invoices to a factoring company is a simple process as outlined below. Doing so is a way to boost cash flow, unlike working with collections agencies that primarily function as debt collectors.

While factoring companies are responsible for collecting customer payment, they are not the same as collections agencies. Factoring companies are not responsible for seeking delinquent accounts and often protect themselves from the risk of non-payment by only offering recourse factoring.

With collections agencies, their primary goal is to collect the unpaid debt, and their method of extracting payments may not be favorable to your customers. Collections agencies are typically used as a last-ditch effort to receive payment, while invoice factoring is a common financing method to improve cash flow.

How to Sell Your Invoices for Cash

Selling unpaid invoices, also known as invoice factoring, is actually a relatively straightforward process.

1. Select the Invoices You Want to Sell

Before selling, collect your unpaid invoices, making sure to select high-value invoices that can provide enough cash inflows during the payment duration. For example, selling an invoice of $10,000 will not generate the same returns as a $50,000 invoice. It is up to you as a business owner to determine which invoices to sell based on the amount of cash you need.

2. Find an Invoice Factoring Company

The next step is to find a trustworthy factoring company. You have to research the factoring companies available to find one that not only aligns with your business goals but also has a track record of transparent payment with their customers. It might also be helpful to ask for recommendations so that you can bank on previous experience.

3. Negotiate Terms and Conditions

Once you’ve found a suitable factoring company, you can proceed to analyze the terms and conditions of the contract before signing an agreement. Carefully study how their invoice factoring works, the collection of payment, and their costs (which you can calculate with an invoice factoring calculator). To get a better idea, speak with their representative and ask questions for clarity purposes.

4. Sign a Factoring Agreement

After you’re satisfied with the contract terms, the factoring company will conduct a background check on your business and your clients that are responsible for paying the sold accounts receivables. Getting approved for invoice factoring is typically easier than getting approved for more traditional types of financing because the factoring company puts more emphasis on the creditworthiness of your customers than of your business since the factoring company will be responsible for collecting the payments for all factored invoices.

5. Receive Cash Advances Against Your Outstanding AR

Once the factoring agreement is signed, you can then get to selling your unpaid invoices for immediate cash! he last step is to receive your cash funding for the factored invoices. In most industries, such as staffing, you’ll typically receive anywhere from 75-90% of the value of each invoice up front (you’ll receive the remaining invoice value once the factoring company has collected payment and subtracted its factoring fees).

With some industries, such as trucking, you could even receive the full value of each invoice within 24 hours.

Ready to Sell Your Outstanding Invoices for Cash? Partner with altLINE

altLINE is the invoice factoring branch of The Southern Bank Company. As a bank-backed factoring company, we are FDIC-insured and regulated at the state and federal levels. Our factoring contracts are straightforward and transparent, and you will have a dedicated account manager to help manage your collections on any factored invoices.

If you’re ready to start factoring or you have questions about whether your business is a good fit, feel free to give us a call at (205) 607-0811 or fill out our free factoring quote form here

FAQs

Can you sell unpaid invoices?

Yes, you can sell your unpaid invoices to a factoring company to receive a cash advance. While this tends to be a slightly more expensive form of funding, it’s usually easier to qualify for, making it an excellent option for those with poor credit history and need to improve their cash flow.

Is it legal to sell unpaid invoices?

It is entirely legal to sell you unpaid invoices to a factoring company. If you are concerned about working with an unreliable partner, altLINE may be the factoring company for you as it also functions as a fully regulated bank, meaning you get more transparency and lower fees.

How quickly can I get cash from selling my unpaid invoices?

Upon invoice approval, altLINE provides a cash advance within 1-3 days.