Learn All You Need to Know About Accounts Receivable Financing
Accounts receivable financing is a kind of asset-based method of alternative funding in which a small business would sell some of its accounts receivable invoices to a factoring company, in order to receive immediate funding. The amount of the money received would be in direct proportion to the total of the invoice balances, usually in the neighborhood of 80% of the actual face value of those invoices. The big advantage of accounts receivable financing is that it provides the small business owner with immediate cash, which would otherwise be held up by waiting for those invoices to be paid by customers.
How accounts receivable financing works
When the financing company pays a small business owner some amount in exchange for company invoices, the factoring company then becomes the owner of those invoices, and is responsible for collecting the amounts from the original customers. Once the amounts have been collected from customers, the remainder of the original amount paid to the business owner is then supplied to the owner, minus the factoring fee imposed by the finance company. For example, if the owner was originally paid 80% of the invoice amounts, the other 20% would be paid after customer collection, with the fee being subtracted out beforehand.
Advantages of accounts receivable financing
In addition to having immediate cash and not waiting for customer payments, there are other advantages to a small business owner who chooses this form of alternative financing. For instance, it’s much easier to qualify for this arrangement than it would be a traditional loan, since credit history is not a major factor for determining eligibility. It’s also true that for a company which regularly participates in A/R financing, it’s not necessary to tie up staff members with invoice collections, and they can be freed up to do more value-added work for the company.
A/R Financing with Revap Group Capital
Accounts receivable financing works very well for many small businesses, and it can work for yours too. Contact us at Revap Group Capital to find out more about A/R financing, or to discuss your eligibility for the program.