A review of Accounts Receivable Financing
Accounts receivable financing is a smart way for small businesses and corporations to bridge gaps in cash flow, enabling them to stay competitive and continue to grow without interruption. Let’s go over some basics about accounts receivable financing so you can determine if it is a good financing option for your company.
How it Works
Each time your business sells something, the customer receives an invoice describing what was sold, the amount due, and the terms of the sale. Some business’s terms of sale do not require payment immediately, allowing the customer to pay the invoice by a certain date. This can lead to unpredictable cash flow. This can be harmful to any business, but especially to those that are in the early stages of growing their company. Many businesses need cash on hand immediately to pay for the cost of doing business – payroll, inventory, supplies, and more. This situation is where accounts receivable funding becomes a helpful tool.
Accounts receivable funding is an immediate solution to low cash flow. Accounts receivable funding involves a company (the factor) that buys a business’s unpaid invoices for a fee. A factoring agreement signed beforehand makes sure that both parties agree on the price the factor will pay for the invoices. The factor advances the business a percentage of the total price paid for the invoices, making that money available to the business immediately. When the factor has collected all of the invoice payments, the business will receive the remaining percentage.
Benefits of Invoice Factoring
Invoice factoring is a unique option with key advantages.
• You’ll have cash in hand – fast. Traditional loans or lines of credit can take weeks or months to secure. Invoice factoring gets your funds to you within days so you have working capital to hire new employees, complete a job, or otherwise keep your business thriving.
• There are no strings attached. Cash from invoice factoring is yours to use however is best for your business. It isn’t tied to equipment or other collateral, there are no payments or interest – it’s yours to spend how you’d like.
• It’s okay if you’re a new company. Invoice factoring does not hinge on your personal credit history. Instead, the creditworthiness of a business’s clients is evaluated. This is great news for newer companies with little credit history, or a business owner who may have a poor personal credit score.
There are many reasons to choose accounts receivable funding for your business. To learn more or have your questions answered – or simply to start the application process – contact Flipside capital today.