Advantages of Accounts Receivable Financing
Sometimes it’s easy to overlook the resources you already have – but those resources could be the very key to getting what you need. Accounts receivable financing (also known as invoice financing) is a creative method to obtain funds for your business by putting your customers’ unpaid invoices to work. Here are three advantages to this type of financing:
When you apply for many types of financing, you must have high credit scores and a certain number of years running your business, along with other requirements which may be difficult to meet. However, with invoice financing, lenders primarily check to see if you have enough invoices for the funds you’re requesting and whether your customers will be able to make their payments. Consequently, you can still apply even if you don’t have amazing credit scores and are relatively new in the corporate world. You’ll just need to provide basic information about you and your company, such as your name, contact information and federal Employer Identification Number, and send in your unpaid invoices for approval.
Additionally, with other financing options, such as factoring, your clients will know that you’re receiving financial support because a third-party company will reach out to them and collect payments. But with accounts receivable financing, you have the option to upload your invoices to your financing company or connect your accounting software so they can see the cash flow that’s coming into your business, and then you’ll simply continue collecting payments from your customers as usual. This way you can keep your financial situation and details a private matter between you and your lender.
Once your financing company reviews your information and invoices and grants you approval, you’ll initiate a draw and they will immediately send the funds you requested. With some lenders, it may take as little as one or two business days to receive the money. Furthermore, this type of financing works as a line of credit (secured by your invoices that act as collateral), so instead of receiving a lump sum of money, as you would in the case of a traditional loan, you can draw out the funds you need when you need them. Then, as you receive payments from your customers, you’ll pay back the funds, plus any fees from your lender.
As you work to make your business thrive, don’t forget to make the most of what you already have. Instead of letting your unpaid invoices sit around, you can use them to pay for everyday expenses or to increase growth.