How To Use Accounts Receivable Financing To Your Advantage

There are many financial situations your business encounters that come about due to no fault of your own. In fact, you’ll often need to deal with the consequences of decisions made by your clients. When you’ve completed services for a customer and have been waiting a long time to see the payment on an invoice fulfilled, it can prevent you from accessing the working capital you need to keep your business afloat. Luckily, a service like accounts receivable financing might be what you need to explore to keep your organization going strong during financial setbacks.

Factoring Explained

A/R financing, also known as factoring, is a service that many business owners consider when dealing with unpaid invoices. A factoring company will look over all of your invoices in order to determine which qualify. The invoices that are approved will be purchased from you and you will be provided with a percentage of the total value as an advance. When the lender collects the rest of the debt, you will receive the difference and pay a fee for the service itself. Overall, it is a simple and effective way to stimulate capital.

Pros of Factoring

There are a few key perks associated with factoring. For one, it is a fast process that allows you access to cash much quicker than other traditional financing solutions. Beyond this, it is not viewed as a loan. As an advance, it is not going to impact your credit history or financial records in the same way sinking into debt with a lender might. What’s more, the funds that you receive from a service like accounts receivable financing can be applied to any business decisions you wish from basic payroll expenses to covering expansion costs.

Cons of Factoring

All financing solutions have drawbacks to consider. With factoring, some business owners find it is more practical to simply wait for the client to pay off the invoice. Unless your company is in crucial need of cash, you might not need to pursue this option. Additionally, not all invoices will qualify. To ensure the payment is received on their end, lenders who provide factoring services only accept invoices that come from entities and organizations that are guaranteed to pay the full amount off within a set amount of time.

Though there is a lot to think over, there are times when accounts receivable financing can work for your business. Learn more and determine how you can use factoring to stimulate your cash flow and see a difference with your budget.

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