Cash flow is pivotal to the success of every business. As a business grows, there is always a need to improve its cash flow. Getting a loan from a financial institution might be viable, but the tough terms and conditions may not accommodate all businesses. As an alternative financing option, most businesses turn to accounts receivables financing. This is a form of financing through which a business sells its accounts receivable to a bank or factoring company. The amount given depends on your invoice volume.
The pros of accounts receivable financing
• It saves the time and effort that a business would have spent on collections from customers. This frees up valuable time that will be spent in managing your business
• There is no need for collateral
• You receive the funds quickly, as the process of setting up and funding your accounts receivable financing is done within a few days. In conventional loans, the financier requires more time to perform a credit review of your business before approving your loan request.
• Your business is protected from bad debts that might arise from customers not paying up their invoices.
• It aids in smoother cash flow and eases financial planning
• As there are many factoring companies, you are bound to get a deal with favorable terms
The Cons of accounts receivable financing
• Though the money is received quickly, your business will not receive the whole amount owed to you as the factoring company deducts its fees.
• A savvy business owner should know that no form of financing is free. While immediate access to cash is unavoidable, obtaining it through accounts receivable financing may cost more than conventional loans would.
• You may lose control of your business to a certain extent as the factoring company may advise you against dealing with certain customers due to their poor credit rating.
Visit Durham Commercial Capital for more information about accounts receivable financing and its implication on your budding venture.