Everything You Need to Know About Accounts Receivable Financing

Managing the cash flow for your business can get tricky at times. You may have large invoices waiting for your customers to pay and your own bills waiting for that payment. With alternatives like accounts receivable financing, or factoring, you can have more control over your bills as well as that big project you cannot quite afford yet.

What Is It?

Account receivable factoring is a process where you take the invoices for which you are owed and get an advance on that amount. This advance comes from a factor that will give you a set amount of money now. In some cases, the factor will take control of the invoice and pay you the remainder minus their fee once the customer has paid. In other cases, you will retain the invoice and pay back the advance plus a small fee.

How Does It Work?

Accounts receivable financing works by using your invoices as collateral on a cash advance. You are selling your property, the invoices, to the factor. The fees involved are usually a small percentage of the invoice total. Since this is not a loan, the factor will focus more on the creditworthiness of your customers than of you. This means that if you choose accounts with a good history of on-time payment, then you are more likely to be approved.

What Are the Benefits?

One of the biggest benefits of factoring is getting the cash you need quickly. Most of the time the application process takes just a few hours and you can have the money in less than a week. This can really help with unexpected expenses or time-sensitive opportunities. Since this is not a loan, it has little to no impact on your personal or business credit. This makes it easier to get an expansion loan in the future without making you turn away opportunities now because of cash flow. The more you research the process and plan what you are going to do with the money, the more you can benefit from AR financing.

Accounts receivable financing is just one of many tools you can use to manage your cash flow. This type of financing is not considered a loan and so should have minimal effect on your credit. It is a good idea to research the process as well as the factors and invoices that you will use before signing any contract so you know what is expected of you and what you can expect from AR financing.


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