Why Use Accounts Recievables Financing to Fund your Growing Business
What Is Accounts Receivable Financing?
When it comes to finding capital for your small business, whether in a time of low customer profit or for growth purposes, many growing business owners turn to accounts receivable financing for a quick influx of cash. In cases where your business is less likely to be able to acquire capital the traditional ways, such as through bank loans, accounts receivable financing can help put money back into your business fast.
Accounts receivable financing is when a business sells their outstanding invoices to a factoring company, which in turn assumes the responsibility of the invoice and provides your business with part of the final receipt value of the invoice. Thus, your business is not longer responsible for the tracking of the invoice, and gains 35%-90% of the final repayment amount in cash. However, this mode of repayment is dependent on the reliability of your customers. If your customers are unlikely to repay their bills, or are small business owners, you may be unable to get accounts receivables financing at a good rate. However, if you have more reliable customers, such as big corporations, you can get up to 90% of the final total of the bill up front to help finance your business.
Pros of Accounts Receivables Financing
Accounts receivable financing offers fast cash for your business, and can be helpful in times of fiscal trouble, as you don’t have to deal with the hassles of getting a bank loan. You can also free up capital by selling off an invoice to an accounts receivables firm, as your business will no longer have to track and maintain that invoice. Most accounts receivable financing deals do not require any form of capital upfront, have no waiting time, and allow you to remain in complete control of your business without having to answer to loan companies or private investors.
Cons of Accounts Receivable Financing
Through accounts receivable financing, your business loses control of many of their invoices, and cannot track the repayment reliability of those customers anymore. You also lose out on potential capital, as there is a percentage of the invoice that you do not get back. The reliance of the rate of financing on the viability of your customers can also make accounts receivable financing difficult for small businesses that are not partnered with large corporations. As with any form of business capital, researching the pros and cons can help you find out if it is the best choice for your business.
To learn more about business financing, check out some of the Revap Group’s other articles on business financing and management.