Most small business owners discover that at some point they require an infusion of working capital to stabilize cash flow and fuel further growth. One form of funding that works well for small businesses is accounts receivable financing, also known as factoring. When you factor your unpaid invoices, the financing company advances up to 90 percent of their value. After your clients pay their bills, you receive the balance of the amount of the receivables minus a small factoring fee.
Here are some of the advantages of this form of financing.
Receive Funding Quickly
Sometimes to take advantage of sudden business opportunities, your company needs a quick method of financing. However, applying for a loan or line of credit from a traditional financial institution can be a lengthy and arduous process. On the other hand, approval for accounts receivable financing can take place in as little as a few days so you can seize those amazing opportunities when they arise.
A high debt-to-income ratio can damage your business credit score and imperil the prosperity of your company. Accounts receivable financing does not involve debt. Instead, you are selling your invoices to a factoring company, and there is nothing to pay back once the transaction has been finalized.
Use Invoices as Collateral
When you take out a small business loan from a traditional lender, you have to leverage your company’s assets as part of the funding process. However, in accounts receivable financing, the invoices that you sell to the factoring company serve as collateral, and no other collateral is required.
Don’t Worry About Your Credit Score
If your company is just starting out and you have not yet had the opportunity to build a strong business credit score, you can still take advantage of accounts receivable financing. Because you are selling your unpaid accounts receivables, the factoring company is more interested in the credit scores of your clients than in your own.
For more advice on accounts receivable financing, look to Value Capital Funding.