As a small business owner, you may be thinking about the use of accounts receivable loans to get necessary funding for your business. You’ve probably already experienced the difficulties associated with getting the working capital you need to support the growth of your or to pay bills when you occasionally experience a lack of cash. There are many times when small businesses cannot secure traditional financing such as loans from the bank or a line of credit. When this happens, accounts receivable financing, sometimes called a business factoring loan, could be the tool that the small business owner needs. What Is Account Receivable Factoring?
What is account receivable financing? This source of financing is sometimes known as factoring or called accounts receivable funding. The process involves the sale of outstanding receivables, or invoices, at a reduced value to a company that specializes in this form of financing. The factoring company basically takes responsibility for the risk associated with the receivables and in return provides the cash that you need for your business. In other words, if you have outstanding invoices for which you are waiting payment, you could sell those invoices to the financing company for a portion of the amount you’re expecting to receive. The upside is that you won’t have to wait for the money to trickle in; instead, you’ll receive the lump sum you need to continue operating on a regular basis. The Amount of Money to Expect The amount of funding you can expect will depend on the length of time that the invoice has gone unpaid. Any invoices that are older than 90 days probably won’t bring you any money. Current invoices are generally more valuable than those that have been due for a month or two. Late invoices represent more of a risk than current invoices. The factoring company realizes that the possibility of not getting paid for the late invoices is greater than for that of the current invoices. With the increased risk of losses for the financing company, you can expect to get less cash up front through accounts receivable loans. The Benefits of Factoring
In addition to quick access to cash, you’ll enjoy several benefits when you access funds through accounts receivable financing. If your business is in the retail segment, you’ll often find that a bulk of your capital is tied up in inventory. Through this funding source, you’ll free up a significant amount of that capital, so that you can boost your inventory and maintain a steady rate of growth. You might find that securing this type of funding offers time savings. Instead of using valuable resources trying to track down unpaid invoices for the money you need, you’ll already have that funding and you’ll be in the position to focus on the operations of your business. Other benefits include the chance to get a lump sum without the use of collateral and the chance to retain ownership of your business. How Would You Use Extra Money? Could your business benefit from the use of accounts receivable loans? If you need access to credit to maintain your inventory, pay your employees or operate on a daily basis, consider the advantages of this form of financing. What could you do with some extra cash