As a business owner, there may come a time when you’re struggling with your finances. Financial difficulties can be stressful and can affect your ability to run your business properly. You can apply for a business loan, but loans aren’t always the best solution. Instead, you may be able to get the capital that you need without a loan with accounts receivable financing.
What It Is
A/R (accounts receivable) financing is a funding solution that provides an alternative to a traditional loan. Instead of receiving a lump sum of money and paying it back over time, you sell your unpaid invoices to a company (or lender). You get cash quickly, rather than waiting for your customers to pay. The funds you receive can then be used to pay employees, pay your bills, or pay for anything else that your business needs.
How It Works
With accounts receivable financing, you sell your unpaid invoices in exchange for immediate funds. The company (also called a factor) advances you a percentage of the value of the invoices you submit. The factor takes over the invoices and receives the payments from the customer, leaving you with one less thing to deal with.
Depending upon the company, you receive between 70% and 90%. After your customers pay their invoices, you receive the remaining percentage, minus the factor’s fees.
How to Qualify
To qualify for A/R financing, you must be a B2G or B2B business. Other requirements include:
- At least 6 months in business.
- Annual revenue of at least $50,000.
While the factor will look at your credit history, the credit of your customers matters more. The company wants to make certain that your customers will make their payments and that they’ll make those payments on time. The more creditworthy your customers, the greater your chances of approval.
Benefits of Accounts Receivable Financing
With A/R financing, you don’t have to wait for your customers to pay their invoices. Instead, you get almost instant access to working capital so you can continue to run your business as usual or take advantage of opportunities for growth.
Easier to Obtain than a Loan
A/R financing has fewer requirements than traditional business loans, making financing easier to obtain. The company considers more than just your information. The creditworthiness of your customers plays a major role.
Focus on Your Business
When you sell your invoices, the factoring company takes over the payments. You have one less thing to worry about, allowing you to focus on your business.
Loans don’t always make sense when your business needs money. With A/R financing, you can get money fast and continue to run your business successfully.