Last Updated on October 5, 2023
Unpaid invoices hinder the day-to-day operations of small businesses that need capital to improve cash flow as only about 6% of invoices are paid within 30 days. These unpaid invoices do not only affect the businesses in question but also impact the economy, making up 5% of America’s GDP and totaling $825 billion.
And while 54% of small businesses have come to terms with late invoice payment, many have found a way to navigate this 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. See below to understand how you might benefit from factoring your accounts receivables.
- 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 credit check requirement or credit score eligibility, unlike traditional financing options such as bank lines of credit
- Limited chances of risk as selling invoices is a straightforward process
- Get approved quickly and easily
Downsides 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.
- Lower profit margins
- Potential hidden fees
- Can have a negative impact on the customer-client relationship
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. It is a great alternative for boosting cash flow unlike 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
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.
Find a 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.
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.
Getting an Approval
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.
Receive Cash Funding
The last step is to receive your cash funding for the factored invoices, which is usually 70-90% of the total invoice value. You can receive this cash advance in a matter of days, and you’ll receive the remaining invoice value once the factoring company has collected payment and subtracted its factoring fees.
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.
Deborah Sabinus is a content marketing writer who works across B2B SaaS and Finance industries. She specializes in bridging the gap between businesses and their audience through content. She is committed to helping readers understand complex topics and help them make informed decisions with content.