With all of the financing options available today, there’s no need to deal with traditional hassles.
Traditional hassles like extensive underwriting, loan guidelines that don’t fit your business, or just interest rates in general – there’s probably a solution for your problem.
A common type of alternative financing that provides a solution for Cash Flow concerns…
Accounts Receivable Financing
Accounts Receivable Financing provides additional cash flow for business owners by “buying” their accounts receivable.
This allows the business owner to receive a payment for their services or product right away, creating a noticeable difference in cash flow when compared to the traditional method of waiting 30-60 days.
In return, the “buyer” will withhold a discount fee for each receivable they purchase….. and this, along with the amount borrowed, is paid off when your customer pays their invoice.
How It Works
Accounts Receivable Financing starts at the time when you complete a service, or deliver a product, and an invoice is created — then it’s followed by these steps.
- After the invoice is sent to your customer, you can then “sell” the receivable for cash right away.
- Your Provider will then “buy” the receivable, giving you cash right away. Depending on your provider, the amount of cash you receive will differ. Some providers have a set advance rate to protect themselves (i.e. only 90% of face value), but all providers will have a small discount fee for each purchase, creating a slight difference between the face value and net amount you receive.
- Your customer sends the payment to an account or P.O. Box with your name on it, but it’s received by the provider. This pays off the amount of debt and the small discount fee for receiving the cash earlier, completing the process.
Will It Benefit You?
The best part of A/R Financing is the increased cash flow. Slow collection times can cause a cash crunch, even if business is good and profits are high. A/R Financing removes this issue by giving you the cash right away, letting you worry about the important things like growing your business, not things like how you’re going to make payroll.
But it’s also helpful for businesses who have been struggling to find financing, limiting their growth and ability to do business.
This usually happens to businesses who are new, fighting through a rough patch, or even trying to grow — all stages that require additional cash flow.
But also stages that create “unstable” financial statements, making it hard to find financing with your current numbers.
With A/R Financing, the credit underwriting focuses on who will be repaying the short-loan….. your customer — and no, they don’t know this.
Providers won’t call your customers and ask about their finances, but they have their ways — especially if it’s a big company (i.e. Trucking Company that drives for Wal-Mart……APPROVED!)
And these are the two biggest benefits of A/R Financing, but it still helps in other ways…
Like processing the payments that come in. When payments are made, now they’re sent to an account or P.O. Box that is controlled by the provider.
This allows the provider to process the payments and pay off the short-term debt they’re due…. all without any work needed from you.
Recap of Accounts Receivable Financing
A source of additional cash flow for those who are just starting their business, those who are going through the slow part of their season, or even those that need extra cash to grow — accounts receivable financing is helpful for a lot of businesses.
It provides the excess cash that these businesses need to get over the hump, and reach their full potential along the way.
If cash flow or tight lending restraints are affecting your business, then our Cash Flow Solutions page will be helpful for you.