4 Reasons To Use Accounts Receivable Financing

4 Reasons To Use Accounts Receivable Financing

It is not always easy for a company to predict when customers will pay invoices. Yet you depend on the receipt of these payments to cover expenses, grow your business and make improvements. Accounts receivable financing is a practical option to quickly and easily secure funds to meet these and other business needs. Here are four reasons to consider this type of financing over a traditional loan.

Quick Working Capital

Securing a small business loan from a bank can be a long and complicated process. With a financing arrangement that leverages receivables, you can expect to have access to working capital much more quickly. A lender simply needs to verify your invoices and check the credit score of clients. The process of financing is even speedier for repeated engagements with the same invoice lending company.

Focus on Customer Credit

Just like with a bank loan, the institution involved with invoice financing assesses the risk of the transaction. Since the unpaid receivables are essentially the collateral, the focus of assessment is more heavily based on your customers’ creditworthiness than your own This makes accounts receivable financing a great alternative for businesses just getting started or those that already have high debt, because their credit history is not the focus of scrutiny.

Improve Cash Flow

Unreliable customer payments can put a serious dent in company cash flow. Financing accounts receivable will not only eliminate the uncertainty and stress of collecting payments, but the smoother cash flow makes it easier to plan for steady operations. It reduces the threat of being unable to pay bills or make payroll.

Capitalize on Business Opportunities

Another benefit of having a more reliable cash flow is it provides the flexibility to capitalize on sudden business opportunities. By using receivables financing it is more likely the company will have the cash on hand to pursue spontaneous marketing initiatives, purchase inventory and supplies for an unexpected sales surge or expand the business.

Avoid Debt and High Rates

A traditional bank business loan involves taking on debt. The interest rate for a short-term loan, such as you would require for a temporary cash crunch from unpaid receivables, is often relatively high. Accounts receivable financing is attractive because you avoid taking on more debt and paying a high-interest rate. Since the funding institution essentially purchases your invoices there is no payback period. The transaction is immediately complete.

These are just a few of the many reasons your company should consider financing accounts receivable rather than a traditional loan.