Accounts receivable financing is is a form of alternative financing that you may wish to consider when your business needs an infusion of working capital. Also known as AR financing, your funds generally arrive quickly and conveniently so that you can help meet the short-term needs of your business operations. Like all financing options, account receivable financing has both pros and cons. Here are some of the particulars.
AR Financing In a Nutshell
Account Receivable financing can be summarized as follows:
You apply for funding for one or more of your businesses that has accounts receivable.
The financing company reviews the value of your outstanding invoices and other particulars of your business.
Once approved, the financing company sends you the working capital as a lump sum.
You can use the money as you see fit: for debt reduction, expansion, new business lines, inventory, etc.
You repay the financing agent incrementally until the lump sum is repaid in full.
The amount you can obtain depends on the financing company. In some cases, your funding is capped at 70% of the value of your receivables. On the other hand, a different agent may permit you to obtain up to 100% of your receivables. Also, different lenders can impose different levels of funding, such as from $50,000 to $1 million or more.
With this type of financing, your outstanding invoices are under your control: It is still your responsibility to collect payments as those invoices come due. That’s different from a similar type of financing known as accounts receivable factoring.
AR financing is worth considering if you’re interested in getting working capital for your business fast and you don’t have perfect credit. It is important to weigh the benefits of AR financing against the total cost of financing to decide if it’s a good option for your particular business situation. Give us a call at Overhead Capital Ltd. and we can help you navigate the process.