A/R Financing and Business Funding Invoices
If you want to improve the cash flow for your business, using your accounts receivable to do so is a good idea. Many people do not consider their invoices as a good source for cash, but they certainly can be. What is accounts receivable financing? A/R financing is using your company's accounts receivables as collateral for a loan, or line of credit. Of course there is such thing as factoring where you essentially sell your AR, but this is not that, you simply use them to obtain a loan or a business line of credit. The way this works is that you will use your A/R to secure a loan. The business loan or business line of credit will advance 60-95% of your accounts receivables. Basically, how much A/R you have will determine how big your loan is. Thus, you never get yourself in trouble with a loan because you know you can for sure pay it. So why should you consider this form of business funding? Well, utilizing A/R financing will help your business by doing the following: it will increase cash flow thereby allowing you to purchase inventory, increase working capital, cover payroll, control debt, and grow your business. A/R financing works much like factoring. You are benefited because instead of waiting 30, 60, or upwards of 90 days for your customers to pay, you send your invoices to the factoring company, or the place securing your loan or line of credit. Your factoring company will take care of collecting on the invoices and advance your business up to 95% of the face amount on the invoice. This is an awesome option because you have an immediate source of cash, without incurring debt. Not drowning in debt, and being able to have cash to grow is huge for a small business. Cash flow is fundamental in growing and expanding your business. Why else is A/R financing a great option for business financing? A/R financing is easy to set up and can be done in a matter of days. That means that you quickly have availability to needed cash, and that you aren't using cash you can't repay, but rather cash you earned, and are waiting for. You decide how many invoices you want to be factored at one time based on how much money you need at the time to finance the parts of your business you need money for. You may find that you only need half of your invoices collected on to obtain the necessary operating funds. It is much easier to outsource your invoice collecting than to hire an entire collection department to work in your small business. This means that you spend less, even if you are taking a little cut on your invoices. A/R financing grows your business by freeing up money to create more revenue with. The more cash flow you have, the faster and easier it is to increase sales. As your sales grow, more invoices will be available to collect on and increase cash flow. If you are concerned about the cost of using your accounts receivable for financing, don't be. If this is an option you want to use, the cost of A/R financing can be built into the cost of goods or services. It is fairly minimal, so many people will not even notice.
A/R financing is a solution for improving cash flow and avoiding the problems caused by slow paying customers. Taking control of your past due invoices and turn them into a solution for your business cash flow struggles.