What Does Accounts Receivable Financing Do for Business?

Is your business cash poor? Whether your business struggles slow seasons, sudden expenses or lengthy accounts receivable waiting periods, accounts receivable financing may be the boost you need to overcome your financial struggles. Learn how this dynamic form of financing can help your business succeed.

It all starts with accounts receivables. When your business sends a bill to a customer, particularly if your customer is a business, you may not be expecting payment for as long as 90 days. Major corporations can handle that turn-around time, but for a small business waiting three months for your payment can be financially crippling.

Accounts receivable financing works by assessing your customer’s credit score and finances. If your customer is trustworthy, a factoring company will offer you between 70 and 90 percent of the total value of the accounts receivable. You can expect payment in as little as one day.

There are many benefits that come from this flexible funding strategy. First, because it’s not a traditional loan, you won’t have to worry about lengthy approval waiting times or building your credit score. You can gain access to this financing whether you’ve built a solid credit score or not.

Also known as factoring, this financing option doesn’t come with any interest rates, stipulations for how you spend your money or payment dates. You simply receive a large portion of the accounts receivable and spend it however you want for your business. From monthly payments to sudden expenses, you have total control of your finances. Whether you choose a single invoice or your entire portfolio of unpaid invoices, it’s an effective strategy for many small businesses.

Most factoring companies don’t require a long-term relationship. Your contract will usually be based on a single accounts receivable, so you’ll be able to start or stop the financing as needed. You also typically sign over the obligation to collect on the accounts receivable. That way, if a customer is late making a payment, you won’t have to spend the time and energy trying to work out a payment plan to receive your payment. Even if the customer completely fails to pay, you’ve usually signed a contract that frees you from the entire process.

Whether you’re low on working capital or itching for a way to invest in your business quickly, accounts receivable financing is an innovative way to leverage your finances effectively. Consider your business model and financial situation and determine whether you could benefit from this flexible financing solution.