Businesses require steady cash flow in order to thrive and grow. This makes it frustrating when unpaid invoices begin to accumulate for products you have already delivered or services you have rendered. One solution to this dilemma is accounts receivable financing. Here are some important things you need to know about this method of funding.
How Accounts Receivable Financing Works
Accounts receivable financing involves turning your unpaid invoices over to a lender and receiving in exchange up to 80 percent of the funds that are owed to you in advance. The lender collects payments from your clients, and then you receive the balance of the amounts due minus the lender’s fee.
Types of Accounts Receivable Financing
There are several variations on accounts receivable financing depending upon the needs of your business. When you factor your accounts receivables, you sell your invoices to a lender in exchange for an advance, as in the example above. With single invoice factoring, you practice selective accounts receivable financing. Purchase order financing gives you an advance for an upcoming order or contract with which you finance the materials or labor you need to deliver a product or service. Inventory financing involves using your inventory for collateral to obtain a revolving line of credit.
Advantages of Accounts Receivable Financing
The application and approval process is fast for accounts receivable financing, so this is a good option if you need funds quickly to strengthen your cash flow. You can qualify for this form of funding even if your company’s financial history and credit score are less than stellar; the lender is more concerned with the credit scores of the customers that owe the money from the unpaid invoices. The lender also takes over the tiresome task of collecting payments from your clients, leaving you free to focus on running your business.
For more advice on how accounts receivable financing can benefit your business, get in touch with Overhead Capital Ltd.