Taking advantage of accounts receivable financing can be an amazing way to promote business growth of every kind. You can use the capital for inventory purchases, employee hiring costs or real estate needs. Before you decide if you’re ready to take the next step, it’s important to understand the benefits of AR financing and how it works.
What Does Accounts Receivable Financing Include?
There are several types of AR financing, and the specific terms depend on the lender or factor you choose. Some companies finance receivables on a one-time basis. Others outsource their accounts receivable department completely. In every case, what’s being leveraged are your business’s unpaid invoices.
Generally speaking, AR financing works as a cash advance on the invoice’s value. Instead of waiting months for payment from clients, you can submit the invoice to a factoring company and get paid immediately. In exchange, the factor receives a small percentage of the bill’s total value.
If you decide to use factoring for your entire AR department, the third-party responsible essentially takes care of everything related to collections and payments, though you continue handling billing and customer service. The value of invoices are deposited in one or two days directly in your business bank account.
How Can You Use This Capital?
Since accounts receivable financing is more of an advance than a loan, you have total freedom on how to spend the money. You can use it to hire extra employees, build a website for your company, put a down payment on real estate, rent a second building, pay taxes or take care of any other business needs.
Needless to say, this presents many opportunities for business growth. Factoring is an excellent solution for cash flow issues. It lets you invest right away in things that give you increased revenue. As your sales grow, you have access to even more liquid capital for expansion.
Whether you’re thinking of opening a second business location or serving more customers from your existing location, AR financing is an amazing tool for making it happen. By investing in the best equipment, your team can work faster and deliver better results.
With capital at your fingertips, it’s also easier to get through the rough first few months after opening a new location. As you continue to build up your customer base, you can use receivables from your flagship location to supplement cash flow and build a solid foundation. It’s hard to beat the business flexibility that this financial tool provides.