Accounts Receivable Financing: What It Is and How It Can Benefit Your Business
Many small businesses encounter problems with cash flow or lack sufficient capital to take advantage of opportunities for business growth. Accounts receivable financing often provides a viable solution to these financial dilemmas. Here are some reasons why this financing option may meet your business needs.
What Accounts Receivable Financing Is
In accounts receivable financing, businesses sell their outstanding invoices, also known as accounts receivable, to a factoring company, which then advances up to 90 percent of the value of the invoices as an immediate cash payment. When your customers pay their bills, the factoring company sends you the balance owed minus its fee.
The Advantages of Accounts Receivable Financing
Sometimes clients are slow to pay their bills, which impedes the cash flow of your small business. Accounts receivable financing gives you the quick cash you need for expenses such as inventory, payroll, renovations, and expansion. You can hire additional salespeople, purchase needed equipment, conduct a marketing campaign, or pursue other methods of dynamic growth rather than remain idle while you await payment from errant customers. Additionally, since the factoring company takes on the sometimes time-consuming task of collection, you are free to devote yourself to activities that stimulate company growth. Unlike traditional loans, which often take weeks or months for approval, with factoring you can become approved and receive your initial payment in as little as a few days.
Accounts receivable financing is a great option for companies that have not yet established solid credit ratings, as factoring companies do not consider your own creditworthiness, but rather the creditworthiness of your clients. Additionally, unlike traditional lenders, factoring companies do not require you to put personal or business assets as collateral when you obtain financing. You also retain full control of your business, as factoring companies do not insist on an equity share.
For more advice on accounts receivable factoring for businesses, get in touch with Growth Lending Group.