Do you know how AR financing works? Most importantly, do you understand how accounts receivable are vital for your business finances? They can make or break your venture, which is why you should learn as much as you can about accounts receivable so that you are in a better position to take charge of your working capital, maintain flexibility and capitalize on such opportunities that are time-sensitive.
If you are still not sure how accounts receivable financing can help your business, or what it is all about, then you are at the right place. Without further ado, here is everything you need to know about accounts receivable financing.
Accounts Receivable – The Basics
Accounts receivable refers to the amount of money your business can collect for goods or services already provided to a customer.
The longer your accounts receivable last, the longer you will have to wait before you can invest in the production of your next order. These uncollected payments hold your working capital hostage, which in turn results in longer business cycles.
If your business is to stay on track, you will need to collect all accounts receivable in due time. This way, you can prevent your cash flow from being disrupted.
Accounts Receivable Financing 101
Accounts receivable financing also referred to as invoice financing, is a financing method for dealing with unpaid invoices. With it, you can get the necessary capital to meet outstanding receivables.
For an asset-backed line of credit, your accounts receivables are known as collateral. This form of financing offers several benefits to small business owners in particular. It is especially useful when a business fails to qualify for other funding options.
Who is Qualified for Accounts Receivable Financing?
What is interesting about accounts receivable financing is that you do not need to meet strict requirements like a high annual revenue or perfect credit score. All you need to do is to provide necessary information regarding yourself and your business, along with unpaid receivable details.
Since some lenders do ask for a credit score, you will need to meet a minimum credit score to acquire accounts receivable financing. The most important qualifying factors include your clients’ creditworthiness and invoices.
How does Accounts Receivable Financing Work?
Now that you have a better understanding of accounts receivable financing let’s take a look at how it can be beneficial for your business.
- Apply for Financing
To get the funds you desperately need, you will need to apply for financing with different lenders. As mentioned earlier, you will need to provide necessary information like your contact details, complete name, and so on.
- Submit Required Invoices
After applying for financing with different lenders, you will need to provide them with the required invoices. This way, they will be able to determine whether your business qualifies for accounts receivable financing.
- Get Approval
Once you have applied and submitted the required invoices, you will have to wait for your lender (or lenders) to approve your application. It can get approval on the same day you applied, or you will have to wait a few days.
- Utilize your Line of Credit
Once your application is approved, you will get a line of credit to work with to meet your business expenses. The funds can take a day or two before being transferred to your account.
- Repay the Lender
Collect all payments on your invoices from repaying your lenders for the money you have taken. An additional fee should probably be paid to your lender for their services.
Finding the Best Accounts Receivable Financer for your Business
Not just any accounts receivable financer will work, you will need to find one that meets your business needs and requirements. You will need to do your homework to make an informed decision.
- Understand your Business Needs and Requirements
Accounts receivable financing is an easy way to get the funds you need without meeting strict requirements. However, each lender has its obligations, which you should find out more about to ensure they are perfect for your business.
- Evaluate the Total Cost of Borrowing
The total cost of borrowing could be higher than expected by adding the lender’s costs and fees. Chances are, you might end up paying more. For this reason, it is a good idea to look at the numbers to determine whether the financial solution is even worth your time.
- Look into Borrowing Limits
If a lender is offering you a line of credit, and you need more, then you should look for another lender. Look for lenders that are offering the line of credit you need.
If you were struggling to get financing, hopefully, accounts receivable funding is what you need for your business. Now that you have a better understanding of what this financing option entails make the most of this information to take your business to new heights!
