Small businesses often need sources of funding to keep their cash flow stable and enable growth. One possibility to consider that is available to companies of any size is accounts receivable financing. Here are some details about this method of funding so that you can consider whether it might suit your business’s requirements.

Accounts Receivable Financing Basics

Accounts receivable financing allows you to utilize your unpaid invoices to help you obtain working capital to run your company. Businesses often find it necessary to extend payment terms of 30 to 90 days to their customers. In the meantime, though, while waiting to get paid, they still need funds to pay their employees, cover the rent, buy inventory and equipment, and handle the various other costs of doing business.

Accounts Receivable Financing Options

Utilizing your invoices through accounts receivable financing can take two forms. You can use your company’s accounts receivable as collateral to obtain a lump-sum loan based on the value of the invoices. As your clients pay their bills, you send the funds to the lender along with its fee. Alternatively, you can sell your accounts receivable in a process known as factoring. You receive an advance of about 90 percent of the invoice value, and the factoring company takes over the collection of payments from your customers.

Benefits of Accounts Receivable Financing

Regardless of the type of accounts receivable financing you choose to use, there are numerous benefits for your company. Despite the extended payment terms you offer your clients, even with a large volume of sales your cash flow remains strong so that you are easily able to cover your expenses and even expand your business. Additionally, funding through accounts receivable financing is easy and quick to obtain. This contrasts with the tedious months-long application process for loans or lines of credit from traditional banks. It is also easier to qualify for accounts receivable financing because the main requirements are invoices from reliable creditworthy clients.

For more advice on financing your business through accounts receivable financing, get in touch with Brave Capital Funding.