Accounts Recievables Financing: How Businesses Utilize AR Financing for Working Capital
Utilize Your Accounts Receivable for Working Capital
As a small business owner, you need working capital to pay your bills during cash flow crunches and to grow your company. However, you may not qualify for financing from traditional lenders such as banks. Alternative lenders can provide you with working capital via accounts receivable financing.
Accounts Receivable Financing Explained
Accounts receivable financing means you sell your outstanding invoices (receivables) at a discount to a factoring company (the factor). The factor provides you with cash representing a percentage of the total amount of the receivables. Your customers pay the factoring company instead of you.
The Percentage You’ll Receive
This sum advanced is based on the age and quality of your receivables but is usually between 75-80 percent of the value of the invoices. Once the receivables are paid, you will receive the balance of their value minus the factor’s fee.
Benefits of Accounts Receivable Financing
• Gives you immediate cash for any number of reasons – making payroll, purchasing raw materials, stocking inventory, expanding warehouse space. Gives you additional working capital.
• Saves you time spent attempting to collect money due from customers.
• You don’t need collateral.
Drawbacks of Accounts Receivable Financing
• Stigma – Be sure to explain to your customers why they must pay their bills to the factoring company.
• Loss of Control – The factor could advise you to stop doing business with a particular customer or group of customers because of poor credit history.
• Cost – Accounts receivable financing means you pay a fee to the factor. Plus, you will pay interest on the cash advance. If a customer fails to pay, your factoring costs will increase.
• Contract Length – You might only need short-term financing, and being locked into a long-term contract might not be the best choice for you.
Talk to a Reliable Factoring Company
If your business can’t get approved for traditional types of loans, accounts receivable financing is something worth considering. Give Artemis Commercial Capital a call to find out if accounts receivable financing is a good option for you.