General Question

tarmar's avatar

I want to sell a chunk of the accounts receivables my business has to raise some cash quickly. Does anybody have any experience with doing this?

Asked by tarmar (195points) March 10th, 2010

Not sure who to approach or what to expect. Any tips will be greatly appreciated.

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11 Answers

CMaz's avatar

Contact your competitors.

tarmar's avatar

Why? To let ‘em know I’m in a cash bind? Uh… no thanks.

CMaz's avatar

Yes, you seem to be between a rock and a hard place. But they are the only ones that would benefit from that information.

tarmar's avatar

Sorry I can’t follow your line of reasoning. Why would I want them to know anything like that?

CMaz's avatar

“I want to sell a chunk of the accounts receivables”

Who would benefit from them? Anybody?

Tropical_Willie's avatar


It’s called “factoring”, look-up “factor” and “funding” in your business pages. Get quotes from several companies for rates and timing of payment to you.
@ChazMaz several companies make good money collecting AR’s and are willing to cut a check or transfer at a discount for full amount now and over time collect the AR’s.

Adirondackwannabe's avatar

It’s fairly common in some industries. Your bank may even have the service available or know of companies doing it.

CyanoticWasp's avatar

@Tropical_Willie had the answer I would have written. It’s a normal and legitimate business, even if not a lot of people realize it.

Attorneys do this all the time, too. If you watch certain television and print ads for “get your money now!”, they offer to purchase your long term receivables (such as various settlements and other debt obligations paid to you over time) for “cash on the barrel”. In other words, they’ll give you a lump sum now for a series of future payments that will go to them instead.

Since the present value of money is greater than future payments, don’t expect to get more than a fraction of what your receivables are worth, though.

Life insurance companies also do the same thing (sort of) through “viaticals”. That is, if a policy holder has a terminal condition (typically an illness—certified by a physician—that will take the life of the insured within a fairly predictable time span), then they will pay out a somewhat discounted cash value “now” that the insured can use as he sees fit (hospice care, gifts to others, “final fling” trips and parties—it’s your call).

TheLoneMonk's avatar

Selling your receivables or factoring your invoices can be a great way to generate cash. There are pitfalls beyond the obvious. The number one pitfall is becoming so reliant on the factoring cash flow that you start to factor more and more invoices. The pitfall is that it is hard to reclaim those invoices once you start relying on them. For instance If you factor company “A“s invoices for a year and now you want to stop and take the invoices back in-house you’re going to experience a period of time with no cash from that invoice. Multiply that by all of the accounts you are factoring and you can see how hard it is to withdraw from your factoring company.

Second pitfall: The factoring company may be buying your invoices at a discount and they may do collections on past due accounts but watch out if your customer pays the factoring company late or god forbid refuses to pay. If the invoice is late the factoring company can generally put a hold on funds in your bank account and will charge interest to you. And if your customer never pays the factoring company the factoring company will not only take back the funds they paid you they will most likely take a huge penalty and interest. Even though you sold the invoice it’s still your job to make sure it gets paid.

Read the fine print on the contract and be careful how many invoices you sell. Know your limit. Good luck.

srmorgan's avatar

You should be cautious in contacting DIRECT competitors about selling off your some or all of your accounts receivable but you should contact other people in the same industry to get some leads.
There are lenders or factors who specialize in a few select industries. They know the customer profiles, they know how other sellers are getting paid, “30, 60, 90, 120 days late” for example and can offer terms suited to your industry, They may also tell you if a customer is paying other people significantly behind terms when they review your receivables profile.

You do not have to sell all of your accounts receivable. You might consider selling off only your biggest customers or your more highly profitable customers so that you can get cash for some of your business but not lose the 7% fee for all of your business.

Depending on your customers, you might want to offer a cash discount, Common terms are 2% 10 days, net 30 or net 60. This gives the customer an incentive to pay more quickly while costing you just a little bit of money. Depends on what is common in your industry.


tarmar's avatar

Lots of great input here, folks. I appreciate all your considerations.

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