When it comes to selling to businesses, one of the issues that creates cash flow issues is the need to wait until contracts are signed to receive payment. For decent sized companies, even when a company has communicated that they have decided to use your company, it can take another 60 to 90 days to get a contact signed – and even more time to receive payment.
“Customers understand that their internal legal process takes time.”
When your customer gives you the good news that they have decided to purchase your product or service, you usually have to then start the process of getting an legal contract signed with the customer. This can take from 30 to 120 days. Using a letter of intent (LOI) can get you a little money upfront while you and your customer work on the real agreement.
The letter of intent (LOI) is a simple document that helps you get paid quicker. The basic idea is that even though your customer and you have not signed a formal agreement yet, you will sign this LOI that states your mutual intention.
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