Accounts Receivables Financing: How Businesses Utilize AR Financing for Working Capital

When small businesses experience cash flow shortages or want to expand but are unable to obtain sufficient funds through traditional bank loans or lines of credit, one option open to them is accounts receivable financing. This involves selling outstanding invoices to a factoring company, which advances you funds usually equivalent to 75 to 90 percent of the value of the receivables. The factoring company pays you the balance, minus its fee, when your customers pay their bills. This form of financing has a number of advantages.

Increase Cash Flow

Customers that are slow paying their bills impede cash flow and cause funds to be unavailable for purchasing inventory and materials, paying your employees, making necessary renovations, and stimulating business growth. Accounts receivable financing works extremely quickly, often within a few days, to free the stagnant funds from your unpaid invoices and generate steady cash flow. Instead of sitting idle while you wait for your clients to pay, you can take steps to accelerate production and generate growth.

Save Time

Collecting funds customers owe takes up personnel, time, and resources that could otherwise be used for company growth. When you use accounts receivable financing, the factoring company generally takes over the responsibility of collection, freeing you and your employees to focus on acquiring new clients and growing your business.

Maintain Control

Factoring companies that offer accounts receivable financing, unlike traditional lenders, do not require collateral as a condition of the loan. This allows you to avoid risking your business or personal assets. Other options for loans require you to sell equity in your business to outside financiers. However, many small business owners are reluctant to give up even a portion of control in their companies. Accounts receivable financing gives you the funds you need while maintaining complete control of your business and assets.

For more advice on accounts receivable financing as a small business funding option, contact Speritas Capital Partners.

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