The Advantages and Disadvantages of Accounts Receivable Financing
Every business needs funds to operate and grow. Although, sometimes a business may have difficulty paying its expenses while awaiting payments from customers. In this case, accounts receivable financing may be a good cash flow solution.
What is Accounts Receivable Financing?
Accounts receivable financing is a contractual arrangement where a company receives funds based on a portion of their accounts receivable. There are two ways to accomplish this. The first is called factoring, where accounts receivable are sold or factored to a company that then collects payments directly from customers. The second is called accounts receivable financing where the receivables are used as collateral for a loan. The company itself collects payments and pays the funds used plus a fee to the financing company.
The Advantages of Accounts Receivable Financing
The advantages of accounts receivable financing start with fast funding. Critical working capital funds may be received as soon as within 24 hours. A company using accounts receivable financing doesn’t have to take out high-interest loans. Also, there are minimum credit requirements because the financing company is concerned about the quality of the invoices they handle. If you have reliable customers, you can secure financing without a great credit history. If you use invoice factoring, you effectively outsource the sometimes-painful process of collections.
The Disadvantages of Accounts Receivable Financing
The disadvantages include sometimes costly fee structures, some lack of control, and dependency on customers to pay their invoices.
How to Qualify for Accounts Receivable Financing
To qualify, a business must invoice its customers and have at least 6 months in business. It must produce at least $50,000 per year in business revenue. It must have creditworthy customers and outstanding receivables.
Seek Professional Financing Assistance
Contact Skogen Capital Lending, based in Gilbert, AZ for tailored solutions to meet your business needs. We are a provider of business loans, and we provide a wide range of options to provide the best financial solutions possible.