How Can You Get Financing with Accounts Receivable?

Businesses that have uncollected invoices may not necessarily have to wait on payment from their customers to start using the money that they have earned but not received. If your small business tends to experience a considerable lag between the time that you issue invoices and your customers pay them, this financing model may be a good resource to help you take charge of your cash flow.

Who Will Give You Cash for Receivables?

Factoring companies’ principal business is purchasing receivables outright from customers. They will buy them at a reduced fee, or they will charge customers a fixed fee for a sale. Some companies also charge processing fees, so be sure that you understand all of the direct costs associated with a particular accounts receivable financing agreement in estimating its total worth.

Alternatively, you may be able to sell secured interests in your receivables to a clearinghouse. This means you won’t have to hinge all of your hopes on approval from one specific financing company, and you can look for competitive compensation for your invoices.

Do Customers Pay You or a Third-Party Company?

When you assign a financial interest to your outstanding invoices, you can wholly divest your company’s interest. This places the burden of collections on the company that has acquired them. Going this route means that you will probably have to accept less for your receivables than you would if you remained responsible for collections.

Many small businesses do not wish to undo their role in getting payment because they do not want a third-party company interacting with their customers. Despite not being directly involved, customers may still attribute overly-aggressive collections efforts back to the company where their debt originated.

With many financing agreement structures, you can stay in charge of collections. Using this option, you can get an advance on receivables from a third-party company and then pay them a fixed fee when you have received payment.

Can You Use Accounts Receivable as Collateral?

Another great way to get more immediate value from your receivables is to assign a perfected security interest in outstanding invoices as collateral for a loan agreement. Accounts receivable are a preferred form of collateral among lenders because they are more liquid than other types of assets.

Ultimately, accounts receivable financing may be a smart way to maximize your available resources. It can give you more operating capital to address short-term needs while also supporting your long-term goals.