How long will you take to collect the outstanding receivables that are reported on your balance sheet? Many companies take weeks or even months to collect invoices from customers. Fortunately, there are ways to convert them into cash now.
Line of credit
A line of credit can help bridge the “cash gap” between performing work for customers and getting paid. Your credit line can be collateralized by unpaid invoices, just like you pledge equipment and property for conventional term loans. Banks typically charge fees and interest for securitized receivables.
Each financial institution sets its own rates and conditions, but these arrangements generally provide immediate loans for up to 90% of the value of an outstanding debt and are typically repaid as customers pay their bills.
Factoring is another option for companies that want to monetize their unpaid — but not yet delinquent — receivables. Here, receivables are sold to a third party factoring company for immediate cash.
Costs associated with receivables factoring can be much higher than those for collateral-based loans. And factoring companies are likely to scrutinize the creditworthiness of your customers. But selling receivables for upfront cash may be advantageous, especially for smaller businesses, because it reduces the burden on accounting staff and saves time.
Other creative solutions
Before monetizing receivables, banks and factoring companies will ask for a receivables aging schedule — and most won’t touch any receivable that’s over 90 days outstanding. What are your options for the stalest of receivables? Before you write off receivables, call the customer and ask what’s going on. Sometimes you might be able to negotiate a lower amount. You also might consider a commission-based collection agency.
Call us to discuss your delinquent accounts receivable. We’ve helped many clients devise creative solutions to convert receivables into fast cash.