How Accounts Receivable Financing May Benefit Your Business

Every business must know how to responsibly manage one’s finances. You might do this by using accounts receivable financing to get working capital quickly when needed. No matter the size of your business, you may run into a situation leaving you in need of more cash on hand than you had planned for. The best way to avoid running into issues is to know how you can quickly access working capital.

How Accounts Receivable Financing Works

The most common method of accounts receivable financing involves factoring, as opposed to a traditional loan. Accounts receivable financing allows you to work with a factoring company to manage your outstanding accounts while allowing you to access a credit limit to cover business expenses such as supplies or payroll. Unlike a traditional loan or credit card that involves interest rates and debt, factoring in this way allows your business to grow while you avoid debt.

Avoid Risk

Small businesses may have an advantage with managing their finances with accounts receivable financing, as it can be difficult to get approved for a small business loan. Especially for new businesses starting out, applying for a loan can be a very intimidating process that involves a bit of risk. Instead of assuming more risk than you are comfortable with, factoring allows your unpaid invoices to be the collateral. Instead of you having to determine the risk involved, the factoring company will do that work during their review process.

Less Pressure

Since the factoring company will be assessing the risk based on your outstanding invoices, the entire process is based on your customer’s credit, not your own credit. This can be another great advantage for those with weaker credit scores. Getting approved by other lenders can be a very difficult and frustrating process without a strong credit score. Accounts receivable financing takes the attention and pressure off you and your credit.

Fast Process

This process is also quicker than applying for a traditional loan. Traditional loans often require extensive amounts of paperwork and proof required to be approved. With accounts receivable financing, you can quickly access the money you need to seize a potentially time-sensitive opportunity. You don’t have to wait to be approved, and you’ll typically have access to the money within a few days. If you’ve factored with a financial institution more than once, the process may go even faster.

Using accounts receivable financing responsibly can benefit your business in a multitude of ways. In addition to accessing the money you need more quickly, you also get to avoid additional risks and racking up debt. The best way to manage your finances is to figure out options and understand which are best for your particular business needs.