Healthy cash flow is an important factor in small business success. However, sometimes seasonal slumps in income or slow-paying clients cause a shortage of working capital. With accounts receivable financing, your company receives a quick inflow of cash that you can use for a variety of urgent business needs. Here are some reasons why this form of funding might be the key to success and growth for your small business.
Basics of Accounts Receivable Financing
In accounts receivable financing, you use unpaid invoices as collateral to obtain an advance payment similar to a business loan. After the lender approves your application, you receive 80 to 90 percent of the value of your accounts receivables. When your clients pay their bills, the finance company sends you the balance of the invoice amounts minus its fee.
Strengthen Cash Flow
The greatest advantage of accounts receivable financing is its ability to strengthen your cash flow. Often corporate and government clients have contracts that allow payment months after you send out invoices. In the meantime, you still have to pay your rent, suppliers, and employee salaries. Additionally, you may want to make improvements in your business, take advantage of unexpected opportunities, or hire extra staff to boost growth. Accounts receivable financing makes these things possible.
Because your unpaid invoices serve as collateral, no other collateral is necessary, so you protect your other business assets such as equipment and property. Even businesses that are just starting up and have not yet had the time to establish a strong business credit score can qualify, because lenders are more concerned with the creditworthiness of your clients than your own. Once your application is approved, you can get the funds you need quickly, typically within one or two days. The amount of cash available to you increases along with your business growth, and you don’t need to reapply each time you need additional funds.
For more advice on accounts receivable financing, get in touch with Value Capital Funding.