Important Tips and Tricks About Accounts Receivable Financing

Many small business owners find that traditional methods of obtaining business credit and loans are beyond their reach or insufficient to meet their needs. Under these circumstances, entrepreneurs often use accounts receivable financing when they need to make up for cash flow shortages and boost business growth. Here are some important things to keep in mind when considering whether to utilize this option to finance your company.

Basics of Accounts Receivable Financing

Accounts receivable financing, also known as factoring, involves selling your outstanding invoices to a financing company known as the factor. The factor advances you a portion of the value of the receivables, typically around 80 percent, and assumes responsibility for their collection. When your clients pay their bills, the factor sends you the balance of the money owed minus a factoring fee. One important consideration is the length of the contract with the factoring company and whether you need short-term or long-term assistance with accounts receivable financing.

Benefits of Accounts Receivable Financing

Accounts receivable financing is a form of unsecured financing, which that you don’t need to put down business or personal assets as collateral. You also retain full ownership in your business, as this form of financing does not involve the selling of equity. Accounts receivable financing frees capital tied up in unpaid invoices, providing you a quick boost to your cash flow. Applying for and receiving financing through factoring is usually much faster than the long, convoluted process of obtaining a traditional loan.

Other Considerations of Accounts Receivable Financing

While accounts receivable financing is easier and quicker to obtain than traditional bank loans, it is sometimes more expensive. A delay in payment of the advanced funds increases the overall fee you are obliged to pay. Be sure to negotiate the precise length of agreement that your company requires.

For more advice on accounts receivable financing, get in touch with Artemis Commercial Capital.

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