Accounts Receivable Financing: Can A.R. Funding Help Your Small Business?

accounts receivable financing for small businesses

Accounts Receivable Financing Can Make Big Impact

Companies that invoice customers rather than get payment up front might be at a disadvantage when it comes to cash flow. As a result, many of these types of businesses have turned to accounts receivable (A.R.) financing in order to keep the money coming in. Let’s look at some of the benefits of using this approach.

Definition

What is A.R. financing, exactly? This term is used when a company sells or leverages its pending in-house payments with a factoring company in exchange for cash up front. The business agrees to accept less than the invoiced amount in exchange for being paid right away.

Speedier Funds

Accounts receivable financing allows a business that would normally have to wait 30 to 60 days for payment from customers to get the cash immediately. Not only does that boost the business’s cash flow, it allows business owners to better manage income throughout the year.

Cash Flow

There are many instances during the daily workings of a company that large sums of cash might be needed in a short amount of time. There may be a balloon mortgage payment to make or it could be tax season. Perhaps the business needs to purchase new vehicles or cover a larger-than-usual payroll disbursement. Whatever the expense, using a factoring company can prove invaluable at the just the right time. In addition, using A.R. financing allows businesses to avoid accepting funds from investors, who generally take part ownership in the company in exchange for the money.

Customer Credit

For businesses that sell large-ticket items, being able to offer financing for customers might be beneficial when closing the deal. If purchases will be paid over time, the company will not receive a large sum all at once, and this can make daily operations more difficult. A.R. financing allows companies to offer credit to their customers without detriment to the business.

Lower Risk

When it comes to managing accounts receivable, there are many hurdles a company faces in collecting the money. Not only do they have to monitor the accounts and send repeated billing statements, they also have to track down funds that are in arrears. Companies that use accounts receivable financing can avoid all that hassle because the factoring company is in charge of collecting the invoiced monies. Plus, no employee time has to be spent monitoring invoices and incoming payments.

Accounts receivable financing is a good solution for many companies. From faster cash to ownership retention, the benefits of this approach are numerous.