Can Accounts Receivable Financing Help Your Business?
Every business encounters cash flow problems and seeks outside financing at some point in its existence. Amidst the multitude of options, entrepreneurs sometimes have difficulty deciding which funding method is the right fit for their company’s own unique needs. Here is some information on accounts receivable financing, a modern method of funding that many businesses find attractive.
The Basics of Accounts Receivable Financing
In accounts receivable financing, also known as factoring, your company sells its unpaid invoices to a factoring company. You receive an advance of 75 to 80 percent of the value of the receivables. When your clients pay their bills, you get a rebate for the balance of the value of the invoices, minus a fee that the factoring company charges for its services. The precise percentage you obtain as an advance depends upon the size and creditworthiness of your clients.
Uses for Accounts Receivable Financing
Factoring is useful for stabilizing your cash flow when customers have long payment terms or your company is engaged in seasonal work. Once you obtain the advance, you can utilize the funds for any business purpose such as covering your day to day operational expenses, buying needed inventory, or acquiring equipment to expand the range of your services. You can also hire new employees, upgrade your marketing efforts, and create a company website.
Benefits of Accounts Receivable Financing
Accounts receivable financing allows you to retain complete ownership in your company, since there is no equity involved in the financing. Your business and personal assets are protected because you do not need to offer collateral. Factoring is a very fast way of obtaining needed funds; your company often receives the working capital to boost its cash flow within days. Even businesses that have not yet built a credit score can qualify for accounts receivable financing because the factoring company looks mainly at the credit of your customers when approving your application.
For more advice on accounts receivable financing, contact Royalty Business Lending.