Accounts receivable financing, also known as invoice financing, is the process of turning unpaid invoices into immediate cash for your small business. Additionally, it is unlike a bank business loan in the sense that you are not incurring any debt; you’re receiving the money from your outstanding invoices that are owed to you.

Invoice factoring companies value the quality of the invoices over the business’s credit. This is why it’s a great financing option for smaller businesses with less than perfect credit. An accounts receivable financing company will typically advance you between 70% and 95% of the invoice’s face value. You will receive the remaining balance, minus a fee, once the customer pays their debt.

Accounts receivable financing frees up working capital

Invoices are often paid late. Businesses can sometimes wait 30, 60, or even 90 days for a customer to pay. A company can experience financial strain if it relies on this capital to operate business operations, pay employees, and support continuous growth.

Having access to cash is extremely important for a business to prosper. Cash flow shortages make it difficult to stay on top of a business’s ongoing expenses. This is where working with an accounts receivables financing company is beneficial for small businesses.

How does accounts receivable financing work?

Accounts receivable financing can benefit companies in the long and short term

  • You select your invoices from reputable customers to finance and send them to the invoice financing company for approval.
  • Once approved, your lender will advance you the value of the invoice immediately. The amount you receive depends on your invoice’s size, your customer’s industry, and your customer’s credit history. Your advance can be anywhere from 70% to 95%.

  • The accounts receivable financing company will hold a portion of funds in reserve until the receivables are collected on.
  • The factor will deposit the total amount collected, less the financing fee, once they collect payment at the end of the payment term.

Benefits of accounts receivable financing

Invoice financing improves your business cash flow: Waiting on a customer’s payment terms can put a financing strain on your business and cash flow. Using invoice factoring provides you fast access to cash, without having to ask your customers.

Hassle-free approval: Getting approved for a loan by a traditional lender requires a business to have collateral, years in business, and a good credit score. This is why many small businesses do not qualify for a bank loan. Account receivable financing is based on the customer’s creditworthiness, not your business’s.

Fast access to cash: You get immediate access to the cash you’re owed when you finance your invoices. As long as you work with a creditworthy customer, an invoice financing company will advance you the value of your invoice in as little as 24 hours.

Why consider accounts receivable financing for your business

Invoice financing is beneficial for businesses that operate in the B2B space with clear repayment terms. Financing your receivables allows you to access the cash tied up in the process of long payment cycles. Having access to those funds helps you maintain liquidity, expand your business, and pay your employees.

Approval and lending decisions are based solely on the quality of the invoice and the customer’s reliability. This makes the review process hassle-free and fast, and in some instances, you can have funds issued the same day you apply.

Consider accounts receivable financing for your business if:

  • You carry a high receivables balance in the B2B space
  • You’re experiencing a cash-flow shortage and don’t have the reserve to support a business opportunity
  • You’re struggling to secure a credit line from a traditional bank

If you operate in the B2B space and are experiencing a cash flow shortage, get in touch with us today at (205) 397-1240 or click here, and let’s see if we can work together.