In small business, cash flow and investment opportunities don’t always coalesce. Bank loans and credit lines often take too long or are insufficient for major investments. When your business needs an influx of cash on hands, consider accounts receivable financing or factoring.

What Is Accounts Receivable Factoring?

Essentially, with accounts receivable factoring, a finance company purchases your outstanding invoices at a reduced price, giving you the cash all at once and absolving you of collection risk. The more recent the invoice, the more valuable it is. Older outstanding bills are less valuable because of the increased risk.

The process is similar to selling debt to a collection agency. You are passing on the risk to another party in exchange for interest. The financing company then owns the debt, for which it is responsible for collecting.

How Accounts Receivable Financing Can Help Your Business

Factoring comes with a number of advantages, especially for small businesses. Some of the benefits include:

Free Up Capital When You Need It

Whether it’s an investment opportunity, inventory expansion or debt repayment, there are times when your business needs cash quickly. Accounts receivable factoring allows you to free up capital previously tied up in invoices. More importantly, it provides cash fast. Unlike traditional bank loans which could take weeks or months to clear, receivable financing can be secured in as little as one to two days. This allows you to move on spending decisions quickly.

Additionally, you can spend this capital in other ways, such as hiring new employees or investing in new property. When your assets are freed up, you have more flexibility in your business spending.

Save Time and Resources

It takes time and money to collect on your outstanding invoices. From debt collection to simply waiting for cash on hand, when you wait to receive payment, you have little control over when you see those funds. With accounts receivable financing, you can allocate that time and cash toward other operating costs.

No Collateral or Loss of Ownership

Most loan structures require some form of collateral or partial stake in ownership to receive funding. However, with accounts receivable factoring, you are selling an asset, therefore no collateral is needed. Once you’ve been paid out, the transaction is complete. Receivable financing keeps you 100 percent in control of your company’s finances and assets.

If you think accounts receivable financing is right for your business, speak with us at Source Commercial Funding by calling 202-499-4441 to learn more about your options.