Businesses often face difficulties with cash flow for various reasons, and this causes them to seek outside funding. Accounts receivable financing enables you to make use of your unpaid invoices to secure and strengthen your cash flow. Here is some information on how this form of funding works and how you can use it to spur the growth of your company.
The Basics of Accounts Receivable Financing
Accounts receivable financing is a method of closing your cash flow gaps caused by customers that wait 30 to 90 days to pay their bills. In using unpaid receivables for funding it is similar to invoice factoring. However, when you factor your invoices, you sell them to a lender that then takes over the collection process, whereas, in accounts receivable financing, the invoices act as collateral for a loan. The amount that you pay as a fee to the lender depends on the quality of the accounts receivables you offer.
The Application Process
To apply for accounts receivable financing, first gather the documents you will need such as your driver’s license, bank statements from your business, and avoided business check. Go over your receivables and decide which ones you would like to use for funding. Submit your application to a lender; if you do this online it will be quick and easy. When your application is approved, you will receive 80 to 90 percent of the value of the receivables as an advance. After your customers pay their bills, you receive the rest of the value of the invoices minus the lender’s fee.
Benefits of Accounts Receivable Financing
This form of financing gives you quick access to funds if you have short-term problems with cash flow, need extra cash for seasonal needs, want to take advantage of a sudden business opportunity, or need to pay employees or bills while waiting for your clients to honor their invoices. The application process is simple, and you can often receive the funds you need in as little as a day or two. You can obtain this financing even if your business credit rating is poor because approval depends on the credit rating of your customers, not your own.
For more advice on accounts receivable financing, contact Emerald Valley Financial Services.