Accounts receivable financing has been a long-standing practice for small and sometimes large businesses everywhere. It gives the company an ability to be creative with their limited finances and particularly for new businesses to pay their own bills and keep their doors open during the crucial early years. Here are 8 benefits of accounts receivable financing.
1. Maintain cash flow
Accounts receivable financing allows many small businesses to maintain cash flow while they are awaiting payments from their customers. One way it works is by selling their outstanding invoices or accounts receivable to another company who pays the business and collects the debt.
2. Get paid right away
With accounts receivable financing the business gets paid fast, without having to wait the 60 to 90 days that payments may normally take. The only waiting is the time it takes to set up that accounts receivable financing and the minutes it takes to process the invoices.
3. Great for start-ups
This type of arrangement is ideal for companies that are just starting out because cash is short supply and credit is even scarcer. The bank won’t likely lend any more money and they need all available cash for operating purposes.
4. Good for all kinds of business
But accounts receivable financing isn’t just for start-up enterprises. Some large corporations like it because it’s more cost-effective for them than to employ an in-house army to collect on their invoices. There are very few industries or sectors who do not use or consider using accounts receivable financing.
5. Allows business to grow
Accounts receivable financing allows a small business to support, build and grow their customer and client base. As the business grows, it’s ability to raise its accounts receivable financing limits allows them to maintain their collection rates as their income rises.
6. Doesn’t damage credit rating
Maintaining good relations with the banks and their suppliers is very important to new businesses. Accounts receivable financing will never diminish or damage their credit rating because the only credit at stake is with the people who owe money on the invoices.
7. Fees but no repayment
The way that accounts receivable financing works is that the buying company pays out 80 percent of the invoice to the small business and then collects from the customer. Once they receive full payment, they send along the other 20 percent minus their factoring fees.
8. Frees up cash for other purposes
Accounts receivable financing frees up cash to expand current production or hire and train new staff. Those are key elements of building a great business and accounts receivable financing makes that possible. If you visit the FundThrough website, you may be able to find more information.