Business leaders know that cash flow is what makes or breaks a small business. If you’re rich in receivables due to you, but don’t have the cash on hand to pay for your costs, then you’re going to struggle to stay in business. Loans are an option, but they come at a cost that you’d rather not pay. Accounts receivable financing can help keep your head above water, without costing a fortune.
Accounts receivable financing, also known as factoring, is a process whereby a third party company purchases your accounts receivables from you at a discount. They give you cash and take over all collections activity. The whole process not only provides you with reliable receivables income timed to your needs, but outsources your collection activity to a trusted source. You went into business to provide a product or a service to your customers, and every moment wasted chasing money is money lost. Accounts receivable companies are experts at getting paid, so you can turn that portion of your business over to them without concern for the end result. A detailed monthly statement will give you all of the information you need on outstanding debts owed, and you can rest easy knowing that the collections process is in experienced hands.
Factoring companies will even vet your customers and clients to ensure they’re a good credit risk. And since the process depends on your customers’ credit, this type of financing is available even if your business is losing money or in bankruptcy. Writing off a bad debt is a big loss to a small business, but factoring is a good way to mitigate the risk of that becoming necessary.
Accounts receivable financing is an excellent way to add to your working capital without incurring any debt. Small business loans and even lines of equity all equate to debt you owe. But with factoring, you’re not taking a loan, you’re selling an asset. And the purchase of that asset comes with added value in the form of services to you like collections tasks and credit-worthiness checks.
Accounts receivable financing can provide huge benefits to your business by providing reliability in your cash flow, lessening the burden of accounts receivable tasks, and assisting you in making good choices on customers with risky credit histories. Some accounts even qualify for free credit insurance. If you sell your goods or services under 30, 60, or 90 day terms, look into factoring to get a boost to your working capital.
