Accounts receivable financing, also called invoice financing, enables businesses to receive advance payments on their unsettled invoices. A business using this financing source can decide to either commit some or all its unpaid invoices to a funder that issues them with early payment at the expense of a specified fee.

In accounts receivable financing, you receive 100% of the total value of your outstanding invoices. You are also in complete control of the collections and your clients never get to hear that you borrowed money. Accounts receivable financing provides a convenient solution you can use to solve your cash flow problems and you can even use invoices that are as low as $100.

There are certain instances when your business is hit with an unexpected sales slump. Business loans are a common source of financing people opt for but they often take weeks or months before they are approved. This is not convenient when you are in urgent need of money. Accounts receivable financing offers a suitable solution since applying for it is quick and simple.

How Does It Work?

State-of-the-art software programs support most accounts receivable financing programs. The program automatically handles the transactions across several clients that may even be in different countries and currencies. It enables you to receive these advance payments without having to disclose to or involve your clients.

Why Is It a Preferred Source of Financing?

  1. It provides businesses with the flexibility in deciding when to participate. This is especially important for those that operate on seasonal demand or during economic instability.
  2. It enables businesses to have access to multiple sources of financing. Accounts receivable financing allows businesses to incorporate several funders into a single program. This minimizes the risk involved in having to depend on a single financial company.
  3. It enables more favorable pricing. Through the incorporation of several funding sources, it promotes competitive pricing in accounts receivable financing.
  4. It often not counted as a debt. When properly structured, it can stay off a business’ balance sheet and thus does not affect future requirements of the line of credit or your unsettled loans.
  5. Businesses get to decide which receivable will be paid early instead of giving up the whole book of receivables. They thus have more control over their ability to fund costs and trade-off cash flow returns.

By having an understanding of the opportunity accounts receivable financing offers, you will be able to make an informed decision when assessing the various sources of financing.