Here is something many small business owners are not aware of: by using accounts receivable funding, they can literally add millions of dollars in fast cash to their operations. That is music to anyone’s ears, of course! If you are able to have greater cash flow, after all, you can also increase your sales while at the same time lowering your cost. Put together, this means faster company growth. If that sounds like something you might be interested in, you need to look into accounts receivable funding.
What Is Accounts Receivable Funding?
Very simply put, accounts receivable funding describes the process whereby a separate company purchases all or some of your accounts receivable. This means you can get a cash injection into your company without having to go for a loan through your bank and paying high fees. It is a fantastic process with many advantages that you simply must be aware of, particularly if you are startup business or an SME (small to medium enterprise).
The Advantages of Accounts Receivable Funding
There are a number of clear advantages to using accounts receivable funding. These include:
- You will have immediate access to dependable working capital, and it can be unlimited so long as you keep making sales.
- It improves your credit rating and financial standing overall.
- You can get discounts for early payments on your accounts. Additionally, it means that you can clear any outstanding debts that you may have.
- You can offer better terms of credit to your clients.
- You can spend the money you get through financing to further your own business, investing in expansion, marketing and other pieces of equipment.
- You can meet your payroll needs, ensure you pay your taxes and even help you avoid bankruptcy.
By using this type of financing, you can turn every invoice into immediate cash, rather than having to wait for your customers to pay their bills. This means that you can increase your own business and access funds as and when you need them. Most importantly, it is a very easy process to complete. When you apply for a loan, if by some miracle you are successful for such an application, you will have to go through weeks and weeks of applications, decision making and more. By the time you do get your hands on the money, it may be too late and you will have missed out on new orders or even have reached bankruptcy.
Naturally, this all sounds like some sort of magical construction with zero disadvantages. This is not entirely true either. You do have to pay something for the privilege of having your invoices taken over. Generally, this is a percentage of the overall value of your invoice. The percentage will be determined by your financial standing and can be anything from as little as 1% to as much as 30%. Hence, you do also have to spend a little bit of time researching the different companies that are out there so that you are able to get the best deal.