Accounts receivable financing, also called invoice financing, allows you to solve business cash flow problems by getting an affordable “loan,” or advance, against outstanding invoices. Using receivables as collateral, you could receive 80 percent or more of the invoiced value, without adding to your debt (or even making payments) to the finance company or lender. A/R financing may be more affordable (and could give you access to a higher loan amount) than using business credit cards or a standard line of credit.
How Invoice Financing Works
To access funds via A/R financing, you simply apply with your selected outstanding invoices, then use the advanced funds to run your business. Your customer may need to pay the financing company directly. Upon receiving payment, the financing company sends you the payment, less a weekly fee. If your customer fails to pay, the financial firm may take steps to collect from them, but your business will be responsible for any amounts not paid.
Types of invoices that may serve as collateral could include phased or milestone-based projects, which can result in your costs getting ahead of customer payments. Reliable government or corporate contracts, which may have a slow payment process, can also be good options to use for accounts receivable financing.
Benefits of Accounts Receivable Financing
- Supports your business’ cash flow until customers pay.
- Easy to apply.
- Quick and convenient, with applications often approved and funded within 2 days.
- No real property collateral required.
- Make no payments. The lender takes fees out of the customer payments and send you the remainder.
- The value of invoices and credibility of your customers determine your approval and the rate you’ll pay.
Possible Downsides of A/R Financing
- Customers may become concerned if directed to send payment to the funding company, rather than to your company.
- Your business is responsible for any unpaid amounts.
- A minimum invoice total may apply.
- Not an option for most B2C businesses.
When you need business funding options, including accounts receivable financing, contact the experts at Value Capital Funding.