As a small business owner, you may have experienced difficulty in obtaining a loan from your bank. They won’t lend you money because you haven’t been in business long enough or your business credit score is too low. However, you need funds because you have a cash flow problem. What can you do to solve your dilemma? One solution is to turn to accounts receivable financing. Using your receivables to obtain cash has many benefits for a small business.
What is Accounts Receivable Financing?
Accounts receivable financing (also known as factoring) is a process whereby you sell your outstanding invoices (your receivables) at a discounted rate to a factoring company. The factoring company assumes the risks on the receivables, and you get an immediate influx of cash. The amount of cash you receive will depend on the quality of the receivables. The balance of the value of the invoices is paid to you (minus the factoring company’s fee) when the invoices are paid. Your customers pay their bills directly to the factoring company.
Pros of Accounts Receivable Financing
• Quick access to cash.
• No collateral required.
• You retain full ownership of your business.
• Relieves you of the task of chasing customers for payment.
• Flexible contracts – You are able to negotiate the length of the contract that works best for your company.
Cons of Accounts Receivable Financing
• Higher Costs – Rates charged are typically higher than on other types of business loans.
• If some invoices go unpaid or are paid too slowly, the factoring company may reject future invoices from those customers.
Find the Right Factoring Company
If you have been turned down by traditional lenders and need funds to cope with your cash flow problems, talk to us. Vankeith Commercial Capital specializes in accounts receivable financing. Contact us to find out how we can you assist you.