Late-paying customers can put a dent in your cash flow, especially for smaller businesses that have just enough to get by. Fortunately, there are many ways for business owners to secure funding and one of the best options would be accounts receivable financing.
Accounts receivable financing, or commonly known as invoice financing, is one of the best options for small businesses that process a significant number of invoices. With accounts receivable financing, you can sell your pending invoices to third-party companies (lenders or factoring companies) in exchange for cash. This allows business owners to unlock value in outstanding invoices.
Rather than waiting for 30, 60, or 90 days for customers to pay up, accounts receivable financing lets you access working capital ASAP. This would be a great option if you need immediate funds to address pressing needs.
Don’t let cash flow gaps limit your business’ potential! Here are six ways accounts receivable financing can help small businesses manage cash flow.
1. Immediate Access to Working Capital
Business owners sometimes face unexpected opportunities that are too good to pass up. For instance, you may be presented with an opportunity to market your business abroad or you may be offered a huge discount if you buy in bulk. Whatever the case, you won’t be able to seize these opportunities without working capital.
Accounts receivable financing allows you to access funds as soon as possible. Most factoring companies can fund your business within 24 to 48 hours! If you’re ready to take on a new opportunity, all you have to do is to finance your pending invoices.
2. Low-Risk Option
Traditional business loans pose a huge risk for borrowers, especially if personal assets are involved. Invoice financing has a much lower risk than its most common counterparts, such as a business term loan.
With accounts receivable funding, you don’t technically loan the money. The funds you borrow are levied against your pending invoices. This means that if everything goes south, you won’t lose your home or your business since your invoices serve as collateral.
3. Promote Financial Flexibility
Almost every type of business experience slow seasons and peak seasons. For instance, a small retail business may experience a major cash influx during holiday seasons, but then it wanes at other times. Regardless of the season, you still need to shell out money to keep the business going.
Accounts receivable financing can help companies manage cash flow during busy and/or lean times. Factoring your pending invoices is a great idea if you don’t have enough working capital to get through slower seasons.
4. Liberty to Choose the Amount of Money to Borrow
In the past, most factoring companies demand that you sell your entire accounts receivable. This setup is not practical for small businesses that don’t need much. Fortunately, businesses can now choose how much credit they are willing to take out. You remain in control of your finances and credit needs so you won’t end up paying for what you don’t need. If you need more money, you can borrow again after paying back your debt.
5. Conveniently Fund Business Growth
Business growth is an exciting time for business owners. But if your business is growing rapidly, it can also be stressful. This is especially true if your funds can’t catch up with growth expenses. In most cases, business growth means purchasing additional inventory, hiring new employees, training current ones, acquiring new equipment, and incurring additional expenses to keep up with demand.
Small businesses in a rapid growth state may need to access additional funding to keep their business afloat. Accounts receivable financing is a great alternative for high-growth companies because rapid growth means more demand; more demand means more invoices you can factor.
6. Build Your Business Credit Profile
Did you know that factoring your invoices could help improve your credit? If you’re looking to apply for traditional business loans in the future, you’ll need a positive business credit history. Invoice financing can help build or rebuild your credit score as long as you maintain a strong repayment record. Some factoring companies will report your records to a credit agency, which can ultimately improve your credit score. Keep in mind that not all factoring companies or lenders report to credit agencies. Make sure to ask potential lenders before doing business with them.
Boost Your Business’ Cash Flow – Apply for Accounts Receivable Financing Today!
Accounts receivable financing provides you with the working capital needed to operate and grow your business. As long as you have invoices to factor, you’ll most likely qualify for one.