Grow Your Business With Accounts Receivable Financing
As a business owner, you’re likely always looking for ways to continue to grow your business without incurring too much debt. Many businesses are willing to take on commercial lines of credit or other loans to help them grow and expand their operations. However, other businesses may not be as willing to use the traditional route to grow their businesses or may be at a large risk for banks because they’re a new business or work in a riskier industry. If you’re looking for another way to raise capital for your business, you may want to consider an alternative called accounts receivable financing. This type of financing allows you to get the capital you need to continue to grow your business without incurring large amounts of debt or taking on extra risk to their business loan portfolio.
How it Works
Accounts receivable financing works with an outside factoring business to purchase their invoices at a discounted rate, typically between 70% and 90% of the original value of the invoice. The company then pays your business up front in cash and collects the money that is owed on the invoice directly from the customer. They will handle all the legwork of collecting the money, even if a customer becomes delinquent. Once the customer pays their invoice in full, the accounts receivable financing company will then pay your business the remaining amount owed minus a small fee.
Taking advantage of accounts receivable financing will allow your business to continue to grow your business without needing to take on additional debt. This is because you don’t have to borrow money since you are leveraging the invoices that your customers already have. When you have immediate access to your operating cash, you can use it to keep you lights on, doors open and employees paid in addition to working on techniques such as setting up and running marketing campaigns to continue to grow your business.
Accounts receivable financing isn’t for every business, however. In order to quality, your customers must have good credit or you become too large of a risk for the factoring company to take on. They need to have peace of mind knowing that when they purchase invoices from you that they’ll be paid in a timely manner or else they end up losing money and resources trying to collect your customer’s outstanding debts. Before you get started with accounts receivable financing, talk to a finance professional to see if your business would make a good candidate for factoring.