Accounts Receivable financing can be very helpful to small businesses which routinely generate a number of invoices each month, that customers will have to make payments for. A factoring company may agree to purchase some or all of your businesses invoices in exchange for immediate cash which you receive up front.
The factoring company would then be obliged to collect the invoice amounts from your customers, while you are free to invest your cash in business growth or in day-to-day operations.
How it works
To get the process started, you would select the invoices you would like to have financed, and then you would apply for funding with the accounts receivable financing company. The alternative lender would advance you some portion of the face value of your invoices, usually in the neighborhood of 80% to 90%. While you are using the cash you obtain for whatever business purposes you find necessary, your customers will be paying invoice amounts to the factoring company. When the invoices have been fully paid, the factoring company would then remit the remainder of the invoice amounts to you, after subtracting out their factoring fee.
Benefits of Accounts Receivable financing
Since this is not a loan, your company will never have any debt to repay to a lender. That also means you don’t have to supply any collateral before receiving your cash advance from an alternative lender, since the invoices themselves serve as surety for the lender. You can arrange for accounts receivable financing much faster than you could apply for any kind of bank loan, and you’re much more likely to be approved than you would be for a traditional bank loan. You can also use the cash which you receive from an alternative lender for any business purpose whatsoever, and you don’t need to justify usage of that cash to anyone.
Will accounts receivable financing help your company?
If you aren’t sure about this, contact us at Goldendale Capital. We’ll be very glad to explain to you all the benefits of accounts receivable financing, and whether or not the practice can help your company.