It is important to keep a close eye on the company’s liquidity. If you make an overview of income and expenses during the year, the company’s cash flows will be clearly visible. It is, of course, not possible to anticipate everything but the better control a company has over its cash resources, the greater chance of avoiding unfavourable situations – for example, losing good business or a sensible investment. An invoice is a credit to the customer and it can take anything from 30 to 90 days before the customer actually pays. Instead of lending money, the invoice can be sold and the company will receive payment directly instead. Invoice purchase is quite simply a common way for a company to quickly improve its cash flow.
A lot can go wrong with an invoice, the customer may go bankrupt during the period of credit or simply not pay in due time. An unexpected credit loss can quickly cause major problems for a company. Through selling the invoice, you no longer have to keep an eye on it, someone else will do that for you and, in many cases, you also avoid the credit risk. A smart way to reduce administration and avoid catasatrophic credit losses.
Many companies have major variations over the year. The business is perhaps seasonal with one or more sales tops, perhaps the company is focusing on major procured contracts which will be paid in their entirety when everything has been completed. In most cases, costs arise before income is received. This may result in low cash resources despite the business going well. Instead of lending money to customers, the company’s money can be made use of and even out liquidity over the year.
Most business owners think that administration is the most boring aspect of running a company. Invoicing and invoice monitoring takes both time and effort. When the company sells an invoice, the purchaser also takes over the responsibility for monitoring the invoice and checking that it is paid in time.
"This means more time for running the business and less risk of time-consuming and tedious administration."
Companies have different needs in different periods. When you have become a customer and sold your first invoice, you decide how many invoices you want to sell and how often. It is a security to know that this possibility exists and that it takes place swiftly when needed. Some companies sell all of their invoices because it is convenient, others only use the service when needed a couple of times a year.
The purchaser of an invoice takes a small proportion of the total amount in compensation., most often a percentage part of the total invoice amount. As it is easy to calculate what it will cost, it is also easy to decide whether it is the right way to go. The cost is often well justified as it releases capital swiftly, reduces errors in the invoicing process, frees up time for other activities while at the same time reducing the risk of credit loss. It is always the seller of the invoice who makes the assessment of whether the transaction will be profitable in the end.