As a small business owner, you probably have trouble getting your bank to give you a loan or a line of credit. However, there is another way to get the funds you need – accounts receivable financing.
What is Accounts Receivable Financing?
Accounts receivable financing means that you sell your outstanding invoices (receivables) to a financing company (the factor) for a fast influx of cash. The amount you get will depend on the age and quality of your receivables, but it usually averages 75-80% of their total value. Once the receivables are paid, you will receive the remaining percentage minus the fee charged by the factor.
Advantages of Accounts Receivable Financing
• Fast Cash – No waiting for your customers to pay their bills.
• Gives You Working Capital – Your capital is no longer tied up in the form of unpaid invoices. Your cash flow problem is solved.
• No Collateral Necessary – No need to put your personal or business assets at risk.
• Saves You Time – The business of collecting money is taken off of your “to do” list. Your customers pay the factor, not you.
• Retain Ownership – You keep sole control of your company.
Are There any Downsides to Accounts Receivable Financing?
• Cost – Obtaining cash using accounts receivable financing will cost you more than a loan. However, if you can’t get a loan anyway, it’s a moot point. And, you will save expenses by not needing staff to chase down customers for payment.
• Customer Control – The factor may advise you not to do future business with non or slow paying customers.
• Contract Length – Some receivable financing agreements can be quite long – up to two or three years, and you may only need short-term financing. So look for a contract that best fits your needs.
Ready to Talk About Factoring?
Educating yourself on the pros and cons of accounts receivable financing is important. Durham Commercial Capital can help you out by evaluating your business and giving you their best advice. We have helped many companies solve their cash flow problems with accounts receivable financing.