When revenue is low, your company can use accounts receivable financing to manage cash flow. This finance method enables you to receive invoice payments early to keep up with daily operating expenses.
How Does Accounts Receivable Financing Work?
This flexible finance option enables you to pay your employees, buy supplies and keep things running smoothly. It does not impact your other lines of credit, preserving those avenues open for other purposes. You can choose how many invoices you finance to maintain control. Selective receivables finance allow you to access only the cash you need. With this method, you receive the total amount of each invoice at lower rates than other funding options.
What Are the Advantages?
You can gain several benefits when you use accounts receivable financing. Some pros of this kind of funding include:
- Maintaining more control over your invoicing by choosing which receivables you want early
- Minimizing risks by accessing multiple funding sources
- Getting better pricing by comparing funding choices
- Preserving future financing options
- Deciding when you need to get financing
Is It the Same as Factoring?
Accounts receivable financing is similar to factoring because it involves financing your invoices. However, there are some crucial differences. When you use factoring to maintain your cash flow, factoring companies take over collecting payments from your clients. Additionally, you only receive a portion of the invoice value as the factor takes a percentage as a fee.
Can It Help You Plan?
This financing process allows you to review detailed reports that enable you to strategize, budget, and manage your cash flow. If the company you use has thorough reporting, it will enable you to focus on other tasks by saving you time and effort.
Do You Incur Debt?
Getting the capital you need often requires offering collateral or giving up some equity for immediate access to cash. With accounts receivable financing, you do not have a debt to repay and do not add to your liabilities.
How Long Is the Application Process?
Unlike a traditional bank loan, you can secure instant verification and approval for accounts receivable funding. Your original funds can get to your bank account in as little as two days. After the initial process, you can access more funds as needed within one day after submitting your new invoices.
Companies specializing in this funding type can assist with billing and processing your invoices. You get paid faster, keeping your cash flow consistent to address daily expenses and maintain superior customer service.
