The Ultimate Guide to Accounts Receivable Financing
Businesses need cash. In order to pay your daily, weekly and monthly, you need substantial cash flow. While there are many loan options available, accounts receivable financing is designed specifically for businesses who can’t afford to wait for long-term invoices to clear. Find out how this financing works and the advantages and disadvantages of this strategy in this ultimate guide.
For many businesses, the largest financial stress is waiting for invoices. Many business-to-business payments don’t occur for up to 90 days. This is a crippling amount of time for many small businesses. In order to pay your own monthly expenses, you need a faster solution. Accounts receivable financing, also known as factoring, is a highly versatile financing option that is suited for your exact situation.
It works by turning your invoices over to a lender. This lender will pay you in as little as 24 hours. You won’t have to wait for a credit approval or the invoice to be paid. It’s the perfect way to receive upfront payments. Many small and large businesses rely on this financing option to take advantage of unique investment opportunities or simply pay their monthly bills on time.
You don’t need to have excellent credit to apply for accounts receivable financing. Because your customer is the one who will ultimately pay off the loan, your lender will use their credit score to determine your eligibility.
Although you won’t have to worry about interest rates like a traditional bank loan, this form of financing can still come with fees. Some lenders will only offer you a percentage of the invoice, between 70 and 90 percent of the total. Others will offer a higher percentage but include fees. Regardless of the way the fees are calculated, you will be paying a portion of your profits in order to receive the invoice immediately. However, this opens up many new opportunities for you to reinvest your money. Money today is generally worth more than money 90 days from now.
If you’re struggling to pay the bills or tired of missing out on sudden investment opportunities, discover how you can use accounts receivable financing to grow your business. Take the stress out of collecting payments and focus your time and energy on more important business matters. Whether you’re a large corporation or a small business, this financing option has the potential to give you far more flexibility and peace of mind.