Money is always crucial in the business world since it can affect a company’s overall performance and daily operations. Accounts receivable financing is a vital tool that may help businesses of all sizes avoid cash flow challenges and obtain all the resources they need now and in the future.

Small-scale firms frequently provide merchandise to clients on credit, which can wreak havoc on cash flow when it comes to paying staff or purchasing inventory. Accounts receivable financing is a terrific financial aid that helps keep the company operating smoothly.

In this article, we break down the three types of accounts receivable financing solutions and give an explanation of which one is right for your business.

What Are The Different Types of Accounts Receivable Financing?

Accounts receivable finance enables businesses to get payment on outstanding invoices ahead of schedule. It is a sort of financing in which a company obtains financial assistance in exchange for a share of its receivables. These can be broken down in several ways, with the most common base being a loan or the sale of an asset.

Accounts receivable financing can be structured into various forms. At its core, there are three main types which include:

1. Traditional Factoring

For small businesses, invoice factoring is the most common type of accounts receivable financing. With this type of A/R financing, a company is given around 80% of the face value of its invoices upfront. The lender or a factoring company then assumes ownership of the invoices and begins the collection process.

Once the lender or factoring company is paid the outstanding invoices from the customers, they remit the remaining 20% of the invoice value after deducting its factoring charge.

2. Asset-Based Lending

Asset-based lending, often known as a business line of credit or traditional commercial lending, is an off-balance-sheet approach that typically comes with high fees. Companies must commit the majority of their receivables to the program and have little flexibility in deciding which receivables to commit.

3. Selective Receivables Financing

As the name implies, selective accounts receivables finance allows businesses to pick and choose which receivables to advance for early payment. It differs from typical factoring in that the company receives full price for each invoice right away, rather than waiting for a partial refund after the bills have been paid. Because selected receivables financing does not appear on a company’s balance sheet, financing rates are often lower.

Contact Porter Capital for Accounts Receivable Financing

Compared to a conventional bank or corporate loan, A/R financing is the more flexible option. It is also a more accessible alternative for small business owners to expand their operations since the standards are less stringent than bank loans. What’s more, accounts receivable financing does not require the sale of a portion of your firm or the use of collateral to obtain funds.

If you are looking for accounts receivable financing, Porter Capital offers working capital solutions to businesses all over the country in a variety of industries. As a direct lender and factoring company, Porter Capital has provided over $6 billion in funding since its inception. Contact us today or fill out our online application to get started!