A traditional term loan is a straightforward way for businesses to tap into credit, but it’s far from the only solution. Through accounts receivable financing, it’s possible to turn unpaid invoices into cash flow. Receivable financing helps businesses boost working capital.
What is accounts receivable financing?
Many successful companies might still have difficulties making payroll or meeting other financial obligations for one simple reason: the billing cycles of their clients and vendors don’t align with their own. That could present cash flow problems when a business needs to wait to collect its accounts receivable.
Receivable financing offers a way to accelerate payment without the need to renegotiate a contract with the vendor or client. Through accounts receivable financing, businesses turn over unpaid invoices to a trusted financing provider who advances an agreed-upon percentage of the invoice within days. When their client pays the invoice, the accounts receivable financing provider deducts its fee and remits any remaining funds back to the business.
How accounts receivable financing helps businesses
The beauty of accounts receivable financing is that it’s not technically a loan. Instead, it takes the guesswork out of invoicing to provide your business a quick cash flow infusion.
Compared to the average business loan, many business owners prefer receivable financing because:
- It’s fast — often faster than applying for a bank loan and waiting for approval.
- It improves cash flow, helping businesses pay routine expenses and keep running smoothly.
- It’s easier to get approved, especially for businesses without many assets or that were only recently established.
- It doesn’t dilute the ownership of a company.
Business situations that benefit from accounts receivable financing solutions include:
- Any business with a seasonal or volatile sales cycle
- Businesses with limited credit history or a start-up situation
- Businesses experiencing rapid growth or expansion
- Businesses with high leverage or turnaround performance
- Businesses seeking refinancing or experiencing a distressed lending situation
With accounts receivable financing, business owners can improve their cash position to take advantage of supplier discounts, lessen fees/charges for late payments, and meet their important obligations. But that’s only true when they choose a trusted, experienced receivable financing provider. Talk to the experts at First Business Bank to learn more about accounts receivable financing and discover the many benefits it offers your business.