What Are the Benefits of Accounts Receivable Financing?

If your business needs funds, there are several avenues you may take. You could apply for a small business loan, look towards investors or ask your clients to pay up on invoices. Sometimes these options work well, but other times they may not. If your need for money is urgent or if you or your business are not in a position to take on debt, accounts receivable financing may be the best solution. Working with an AR factoring firm will allow you to get the cash you need to grow your business without the lag time or additional debt of taking out a loan.

What Accounts Receivable Financing Means

Financing your accounts receivable is, simply put, selling your invoices to a third party who will collect them for you. Rather than waiting net 30 for payment from a client, a factor will give you cash today and collect from the client later. This allows you to take care of business needs, such as funding payroll, without waiting for a client check to arrive. The cost is small, typically 5% or less of the total invoice, and can be even more negligible if you’re also saving on collections efforts. Depending on the needs of your company, the cost benefit can be huge if having cash on hand allows you to fulfill other orders to make other financial moves to grow the business.

Take the Pressure off Collections

Time and money spent collecting what is already owed to your business can be a drain, especially when you’re small. Using accounts receivable financing allows you to take the focus away from collections and put it back on growing your business and bringing in new money. Many factoring firms can actually help you decide if you should take on a client in the first place by determining their credit worthiness for you so that you can make smarter, more informed decisions from the start.

The Bottom Line

Running a business can be tough, especially when the economy takes a dip. Smart business practices allow you to get ahead of the game and remain relevant through changes and struggles. In some cases that means hiring great personnel, taking a chance on a client or analyzing your business for opportunities to save and spend. Many of these business decisions require money or the promise of money in the future. It can be stifling to hold back because your company doesn’t have the money it needs today to move forward. Accounts receivable financing can give your business the capital necessary to grow and flourish no matter the time of month.