If you are seeking funding for your small business, you may have found that many lenders are hesitant to extend loans to companies like yours. It can seem like a catch-22: you can only borrow money if you don’t need it. Fortunately, there may be a better option: accounts receivable financing. Understanding how this works can help you find a path to success for your business.
What Is AR Financing?
Financing your receivables means receiving money based on your current outstanding invoices. If you ever experience slow cash flow due to waiting on your customers to settle their balances, this may be a good choice for you.
There are a couple of ways that AR financing can work. Either you take out an asset-backed loan that is secured against your invoices or you simply sell your invoices to the financing company. In the latter arrangement, you get paid right away and the financier gets paid by your customers.
What Are the Benefits?
There are a lot of reasons to consider using AR financing. These are some of the main benefits:
- Available to Most Businesses: If you issue invoices to customers, you can likely receive financing for your receivables. It doesn’t matter what business you are in or what your model is. As long as you issue invoices and your customers are likely to pay them, you will probably be approved.
- Based on Customer Credit: The approval process is based on your customers’ credit and likelihood to pay, not yours. Thus, if you have imperfect credit or less-than-ideal cash flow, it isn’t a problem. You can likely still be approved.
- Money for Any Use: Most forms of financing carry some restrictions on how you can use the money. That is not the case with AR financing. Since you are selling an asset (the value of your invoice), you can use the money any way you like. It is just like getting a sale.
- Funds Grow With Your Business: As you increase your sales, you can get more and more AR financing. Thus, you can be sure you will always have access to the money you need.
Learn More and Get Started
For many businesses, AR financing is a great option. It is a relatively short-term form of financing, and the fees can be somewhat high, depending on the financing company you work with. However, for a lot of companies, it is a good way to ensure consistency and stability. Learn more today.