How You Can Use Accounts Receivable Financing To Free Up Capital

Without access to working capital, taking care of most business operations can be incredibly difficult. Everything from paying your employees to covering vendor costs is handled by your cash flow, so any disruption can be cause for concern. This is especially true when the main source of your trouble is coming from your customers. If you’ve been dealing with late payments from clients, you might want to take time to review how a service like accounts receivable financing can solve this issue. With a little perspective, you can easily transform a problem into a practical solution.

The Basics of AR Financing

A service like factoring is one that is not too difficult to grasp. Essentially, this is a type of lending that is based on a borrower’s assets. In this case, the unpaid invoices you have can be used as a way of securing an advance. The lender looks at invoices and purchases qualifying accounts receivables from your business. You receive a percentage of the value, pay a fee, then receive the difference you’re owed once the lender collects the debt from your client. The process is straightforward and allows business owners a chance to take action when cash flow stalls.

How You Benefit From Factoring Your Invoices

There are some key advantages that come from using accounts receivable financing solutions for your company’s capital needs. The main benefit that comes along is an ability to use a problem like unpaid invoices as a way of fueling a solution. An advance is preferable to a loan and other alternative financing services because it is not a source of additional debt. You are given the money you’re already owed and are paying a fee, meaning that you don’t have to worry about your credit score taking a hit due to using this service in a time of need.

What To Review About AR Services 

While this is a great option for many business owners, there are times when factoring solutions will not be the best fit. For example, some lenders put very strict guidelines on the qualifications for invoices. Before you assume that you can use factoring solutions, look at the requirements set forth by lenders and ensure your invoices are an asset of value. Additionally, review the fees attached to factoring before agreeing to anything. In some cases, the fee can be more significant than some borrowers realize.

When you find yourself in a position where your clients are not paying for the services that you’ve provided, accounts receivable financing services might be the perfect solution. Take time to look over the basics and see how you can get through a difficult financial period.