Consider leveraging the value of your company’s accounts receivables to access working capital. This financing model can help you keep your business’ budget in good shape.
Avoid High-Interest Charges
When you’re contending with a lot of expenses, your first instinct might be to charge all your purchases on a business credit card or another line of commercial credit. However, this could prove to be a regrettable way to cope with expenses if it means that you’ll have to deal with high-interest rates. After just a short period, a high-interest rate might make a moderate principal balance snowball. Merely keeping up with interest rates could be extremely challenging, and chipping away at the principal balance could be very slow going.
One of the best advantages of accounts receivable financing is that it gives you access to working capital without the imposition of excessive interest charges. By sparing yourself from high-interest obligations, you’ll have more room in your operating budget to stay current with ongoing overhead costs and invest in value-adding fixed assets.
Overcome Funding Barriers
Problematic credit histories can make appealing financing opportunities hard to come by. Lenders may simply have to turn you down as a matter of policy if your credit score isn’t up to par. Past issues with creditworthiness won’t necessarily bar access to financing utilizing accounts receivables.
Get Capital When You Need It
No matter what type of business you’re engaged in, doing work on your customer’s behalf takes money. Whether you’ve purchased supplies from vendors to fulfill customers’ orders or paid employees to perform services rendered, you can’t recapture those funds until you receive payment from your customers.
Accounts receivable financing is a great workaround for this problem. You can obtain financing based on the value of the invoices that customers haven’t gotten around to paying you yet. For example, a financing company might be prepared to offer you a percentage of invoices’ value in the form of working capital. In return, you’ll agree to repay that amount when you’ve received payment. You may have to pay a fixed percentage or flat fee as a consideration in this type of agreement, but both the short-term and long-term benefits could make a nominal fee well worth it.
Ultimately, financing that uses the untapped value of receivables could help you grow your business. Compared with other financing models, you may find that it carries fewer risks and faster rewards.