For some businesses, accounts receivable financing can be a made-to-order solution for a much-needed infusion of working capital. Let’s take a closer look.
What Is Accounts Receivable Financing?
Accounts receivable financing can be a wonderful way of obtaining the cash your business may need. If you have any sales at all – even future sales – you may qualify for immediate funding. It works like this:
You obtain immediate upfront cash based on your sales invoices.
You receive a large fraction, generally close to 100%, of the total value of your outstanding sales.
You farm out the collection of payments owed directly to the financing agent.
This enables you to continue to focus on your business operations.
The size of the financing is up to you: you can sell anywhere from a few percent to 100% of your sales receivables.
The Pros and Cons of Accounts Receivable Financing
All forms of financing have a good and bad side to think about. The same is true for accounts receivable financing. Let’s look at them a bit.
Benefits
Collateral Not Needed: Accounts receivable financing is not a loan. Therefore, it does not require any collateral in the form of assets and guarantors.
Your Funds Arrive Quickly. And generally hassle-free as well.
You Still Own Your Business: Unlike some other forms of financing, you do not give out a percentage of your business ownership to acquire finances.
Drawbacks
Can Be Costly: Accounts receivable financing can be more costly than other forms of business financing. Additionally, failure to pay back the amount within the predetermined period will only increase the total cost of your financing.
Potentially Long Contracts: In some cases, your financing term may be quite long. It is imperative to negotiate the length of the contract that perfectly works for you and your business.
Speak With Us
Here at Capital Funding Source, we are leaders in the full spectrum of business financing options. Give us a call today.
