Accounts Receivable Financing is a tried-and-true source of working capital that improves cash flow and helps companies expand and increase their profitability. Accounts receivable financing enables a business to sell their unpaid invoices at a discount in return for immediate cash.
This popular no-debt funding alternative is often used in place of bank loans and is less expensive than borrowing form online lenders. Rather than waiting weeks and months on your customers to pay their invoices, you can turn the potential revenue sitting in your stack of accounts receivable into cash in your pocket. Every day, hundreds of thousands of business people work with factoring companies that purchase their accounts receivable and pay them up to 95% of those invoice amounts right away.
How Accounts Receivable Financing Works
When you partner with a factoring company, you will be able to sell your invoices that are due in the future. The factoring company will pay you a portion of the money that is due to you so that you do not have to wait 30, 60 or 90 days for your customer to pay on that invoice. The funds are usually deposited by wire transfer or direct deposits.
Businesses of all sizes use accounts receivable financing to maintain steady revenue before their customers pay their bills. If your cash is tied up in your accounts receivable and you would prefer to have that money now, accounts receivable financing is an alternative funding option worth exploring, especially if you want to avoid the high interest rates of online lenders and merchant cash advance sites and endless loan payments.
Accounts receivable financing is the process of selling unpaid invoices at a discount in return for immediate funds. Invoice factoring is different from invoice discounting when a business takes out a loan using their invoices as collateral and pays a set finance rate rather than a percentage of the invoices.
Accounts Receivable Financing Steps:
- You provide a service or product to your customer
- You submit your invoice for that customer to your factoring company
- Your factoring company advances you a percentage of that invoice
- Your factoring company collects on that invoice from your customer
- You receive the balance of the invoice, minus a small factoring fee
Many business people have found that accounts receivable financing has bought them the time they need to balance their income and expenses and brought them financial stability. The funding process is easy and fast. When a business owner works with a top-tier factoring company, the approval process is also fast. Clients with creditworthy customers can be accepted for accounts receivable financing within a couple business days at some factoring companies.
The Benefits of Accounts Receivable Financing
As a businessperson, you know how important it is to have cash on hand to pay your employees, vendor bills, rent, utilities, and everything else you need to keep your business going. When you speed up your cash flow through Accounts Receivable Financing, you gain the peace of mind that you can pay bills on time and not worry about paying off another loan. Whether you own a startup company or a long-established business, when you lack ready money to keep your finances on a steady course, you not only jeopardize your company’s future, you also cannot take advantage of profitable opportunities, such as taking on a new customer with long payment terms or purchasing needed equipment.
Here’s a quick look at a few of the benefits of Accounts Receivable Financing that could come with factoring at a top-tier factoring company:
- Expedited cash flow
- Low factoring fees and high advance rates
- No debt added to your balance sheet
- Fast and friendly customer service
- Professional credit checks and collections
- 24/7 online access to all paperwork and reports
- Personal account manager for single point of contact
- Improved credit score for on-time payment of bills
- Free direct deposit and economical wire transfers
Accounts Receivable Financing Process
The accounts receivable financing process is simple. Based on a variety of factors like your eligibility, your customers’ track records, and the amount of invoices, you will receive a specific factoring rate from the factoring company. Once you factor your invoices, most factoring firms will pay you within days. Your customers typically will have to pay within 90 days, otherwise the debt reverts to you and you must pay back the factoring company the advance you received on that invoice.
The financing you receive from factoring invoices can be used toward covering bills, buying new equipment, and growing your business with whatever is needed. Factoring companies place no restrictions on how you use your advance. You can factor as many invoices as you want and can continue to factor invoices for as long as you wish. Not only does this type of financing improve your cash flow, but it also gives you the flexibility to take on larger customers with longer payment schedules and take advantage of early payment or volume discounts.
Another tactic that is similar to factoring is invoice discounting wherein a business can take out a loan using their invoices as collateral and pay a set finance rate rather than a percentage of the invoices.
Accounts Receivable Financing vs. Bank Loans
Financing accounts receivable can be especially beneficial to businesses that are unable to get bank loans because of their credit score and lack of collateral. Factoring companies consider your customers’ credit worthiness – not your payment history. Here are some key differences:
Accounts Receivable Financing programs
This video describes the difference between borrowing and factoring, or also known as accounts receivable financing.
Financing your Accounts Receivable
Financing your accounts receivable can happen in a few days, not a few months. Interstate Capital, one of North America’s leading accounts receivable financing companies, gets you started with a customized factoring rate quote, available at a click HERE. Friendly factoring specialists with experience helping other businesses in your own industry can walk you through the process and describe benefits, such as Interstate Capital’s in-house credit department that works to protect you from completing jobs for customers with bad payment histories and their own professional collections team that works to stay on top of clients’ customers to resolve any issues that will prevent timely payment.
Is Accounts Receivable Financing Right for your Business?
If you run a business-to-business company and work with customers who take 30, 60 or even 90 days to process payments, then accounts receivable financing may be a viable funding source for you. If you primarily have international customers or the majority of your customers have questionable credit scores, then factoring is unlikely to be a realistic option.
Find out now if accounts receivable financing is right for you. For more information about accounts receivable financing with Interstate Capital, contact a representative by clicking here:
Accounts Receivable Financing Success Story
The dedicated account managers who work closely with their clients at Interstate Capital often hear how accounts receivable financing has helped businesses expand and grow their revenues. Here’s one example (company and names have been changed):
The founder of Prevention Solutions, a small 14-year-old family-owned firm that sells and services fire extinguishers, decided to hand down his company to his son, Clark. The father had been satisfied with staying small, but Clark, an energetic young man, had plans to grow the business. He saw lots of opportunities his father overlooked or had not pursued.
When everything was on an even keel, cash flow was not much of a problem for Prevention Solutions. They collected their accounts receivable in about 60 days. However, when the son took over the business, he began marketing their services more aggressively. Before Clark knew it, he had customers lined up, but no ability to obtain fire extinguishers from his supplier because he was constantly waiting to collect his receivables.
When he would get a new customer, he would have to keep contacting the customer to inform him that the fire extinguishers were on backorder. In reality, it was his cash that was on backorder!
Clark was familiar with accounts receivable financing. He figured this financing approach would allow him to buy more fire extinguishers for resale and increase both his revenues and gross profit. He began contacting invoice financing companies and found Interstate Capital during an Internet search.
In just a few short days, Interstate Capital’s the cash flow specialists were able to send him an advance on those 60-day invoices. He was able to use that infusion of cash to quickly go back to his suppliers, increase his inventory and deliver on his orders. His decision to work with Interstate Capital gave him the cash flow he needed to expand his customer base – and keep his new customers happy.
*Names have been changed.
For more information about accounts receivable financing with Interstate Capital, contact a representative by clicking here: