Invoice sales is a financial strategy used by businesses in Australia to maintain cash flow by selling their outstanding invoices to a bank or financial institution. This arrangement enables businesses to receive immediate funds, rather than waiting for customer payments.
The shift in responsibility
A key advantage of invoice sales is that the business is relieved from the burden of chasing up late payments. Once an invoice is sold, the bank assumes responsibility for collecting the owed amount from the customer.
Enhanced liquidity
The principal benefit for a business engaging in invoice sales is the enhancement of predictable liquidity. It turns unpaid invoices into immediate working capital. For the bank, this creates an additional revenue stream as they impose a fee for the service, deducting a certain percentage from the invoice’s value. And, in the event of non-payment, it’s the bank that handles reminders and debt collection procedures, keeping any related fees.
The alternative: factoring
Factoring presents another option. This involves a specialised factoring firm managing all of a company’s invoicing affairs. It’s akin to invoice sales, yet with factoring, the company outsources the entire handling of its accounts receivable, whereas with invoice sales, the company selects specific invoices to sell and continues to manage others in the regular manner.