In business, accounts receivable financing offers a convenient way to turn outstanding invoices into real dollars immediately. While it’s not without negative connotations, most of them are misguided. To understand how it works and why it’s good for your business, let’s explore its undisputed benefits:
Freeing Up Untapped Capital
In this financing arrangement, the factoring company—the one that provides the cash advance—would initially pay you money equivalent to the true value of your accounts receivables. Usually, you’re going to receive 70% to 90% of the worth of the outstanding invoices. Then, the other party would pay you the remainder, less the factoring fee after bill collection.
Avoiding the Long Wait
If you don’t have the luxury of waiting for your customers to pay up what they owe before the due date, which is typically within 30 to 60 days, this kind of financing is a viable option.
Moreover, a factoring company can advance you the money in no time through a wire transfer—unlike how traditional lenders, like banks, do business. The process is frictionless, allowing you to boost your cash flow immediately with little fuss.
Leaving Business Strength Irrelevant
When appraising outstanding invoices, factoring companies look at the creditworthiness of your customers—not your company. Your business’s financial strength (good or bad) won’t be factored into the decision-making.
Accruing No Debts
This type of financing keeps you from taking out business loans just to get working capital to run your company. In fact, it rids your company of your customers’ unpaid debts.
Worrying Nothing About Collection
Chasing after delinquent customers are stressful, distracting you from focusing on the core aspects of your business. In this financing arrangement, the factoring company will collect the debts on your behalf so you won’t have to think about repayment schedules and deal with the collection.
Companies of all sizes use this type of financing because keeping accounts receivables for too long isn’t good for business. Considering being cash-poor can hurt your organization in many ways, strongly consider this financial option.