Using Accounts Receivable Financing To Fund Your Business

Balancing all the different facets of your business can sometimes feel like a juggling act. Along with working out how to market, expand and grow your company, you also have to manage daily expenses. Accounts receivable can be a useful tool to help finance your business. Here are some of the benefits and caveats of accounts receivable financing.

Accounts receivable is the use of a financing agreement in which the money owed to a business, or its receivables, is sold to a financing company at a discount. Instead of waiting for payments due to your business, you are selling the rights and risk to them, and receiving a smaller amount in a quicker turn around time.

There are many advantages for using an accounts receivable agreement. The most obvious benefit is that you’ll receive fast cash payments. Outside of business sales, you may occasionally need extra cash for various reasons. Having accounts receivable money available to help out with expenses can be an especially great alternative if you don’t have access to lines of credit or loans. Waiting for payments can be frustrating, especially when it drives focus away from other areas of your business. Having an agreement in place saves time, hassle and also serves as a sort of peace of mind for your daily business management.

Another benefit of accounts receivable financing is that you’re not surrendering any ownership of your business. Even though you’re selling the rights to your invoices, the ownership of your business as a whole remains in tact. This is an attractive option if you don’t want to rely on investors for your new business. Also, you don’t have to use any parts of your business as collateral in the agreement.

While weighing the benefits of using accounts receivable, there are a few things to look out for. You may have to cease relations with certain businesses that your financing company deems as struggling. This could mean some loss of control over your business dealings, as the financing company is assuming the risk. Also keep in mind that your discount rate to the financing company is based on the credit of your clients. Depending on the length of your contract, that discount cost could build up over time.

Deciding if all of these factors are worth the convenience will be up to you as the business owner. Accounts receivable financing could be a great method for you to save time and better manage your business.


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