There are many financing options for both small and large businesses. Although the terms and conditions for the various financing options vary, their primary purpose is to rescue a company from the short term and long term financial problems. Accounts receivable financing is one of the most notable financing options for entrepreneurs. It allows enterprises to settle their expenses, as they wait for the settlement of their invoices. The borrowing firms get a lump sum, depending on the number of invoices they have. If you need extra funds for your business, read on to find how accounts receivables financing can be of help to you.
Is Invoice Financing Right for You?
Invoice financing is an ideal option if you are experiencing a short term gap in your cash flows. It could also help if your business is rapidly expanding, or when you have other urgent business expenses. You can rely on invoice financing to improve on all aspects of your business, provided you meet the minimum qualification requirements.
How it Works
If you qualify for this financing option, you will send your business invoice to the lender. Basically, the invoice should be payable in less than 90 days. The funder will open an invoice finance line and might finance up to 95% of your business invoice. The amount of funds you get majorly depends on the value of your invoice.
There are two main effective methods of receivables financing. The first one is the asset-based lending, where the funder takes the borrower invoices, and uses them as collateral for the funds. The second one is factoring, where the financing company purchases the unpaid invoices. In factoring, the borrower selects the specific invoices which the funder should finance. The fee for this option is, however, relatively higher than the first option.
Why You Should Use Accounts Receivables Financing
- Your invoices act as collateral- you do not require any other form of security. This is helpful if your business is still young.
- You will access the funds quickly- the application, approval and disbursement processes take place within a week.
- The lender does not consider your credit rating- your customers’ credit histories determine your chances of getting the loan. You can, therefore, get the loan with a poor credit rating.
Accounts receivable financing is one of the best financing options for businesses experiencing cash flow problems. The invoices act as the collateral, and the application process is simple and straightforward. Moreover, borrowers with a bad credit rating can still qualify for the funds, since the funder considers the credit rating of the customers.