Your Complete Guide To Accounts Receivable Financing

Working capital is an essential factor in growing your business. However, some business models make it easier to secure than others. For example, if you take delayed payments, it may be challenging to get a traditional loan. Waiting up to 90 days for payment may also impact cash flow and make purchasing additional inventory unworkable.

The good news is, you can take those invoices and turn them into a funding source through accounts receivable financing. Even if you’ve been turned down for loans in the past, you may be able to benefit from this innovative financing option.

What Is Accounts Receivable Financing?

When you finance your receivables, the lender pays you a percentage of the invoices’ worth. In exchange, the lender collects the debt. If the debt is collected, the lender will pay you the remaining amount, minus a small fee. If the debt can’t be collected, you don’t receive any more funds, but you still keep the initial payment. In a way, the process is similar to outsourcing.

Who Should Apply?

The first requirement for this type of financing is to have accounts receivable. If invoices aren’t a crucial part of your business model, AR financing may not make sense for you.

This type of funding may also be appealing to companies that don’t want to put up assets for collateral or pay interest. Traditional loans can get expensive, especially if you default. AR financing, on the other hand, has significantly fewer risks.

What Are the Benefits?

Financing your receivables is a solution to several problems. First, it provides you with immediate funding. That alleviates a lot of stress when it comes to purchasing materials or inventory for future orders.

Second, it takes the responsibility of collecting off your shoulders. Collecting debt requires expending resources — if customers never pay, then you’ve invested twice as much into a futile effort.

Third, you may have an ongoing partnership with a lender, which means you can develop a reliable cash flow. This steady income will be a point in your favor if you decide to seek traditional loans in the future.

AR financing is an excellent solution for businesses that need reliable cash flow and aren’t sure how to get it. Once you’ve partnered with a lender, you can focus on developing your company and delivering quality to your customers. Don’t wait on payments for even one more day — get paid now and use those funds for the future.