Many businesses experience difficulties with cash flow that hinder company growth. Often these problems occur because clients are slow to pay their bills. One solution to this dilemma is accounts receivable financing. Here are answers to some of the most common questions about this method of funding.

What Does Accounts Receivable Financing Mean?

Accounts receivable financing allows businesses to utilize their unpaid invoices, which are classified as assets, to obtain a cash advance that they can use to strengthen their cash flow. The accounts receivables become the collateral for the advance.

How Is Accounts Receivable Financing Different from Invoice Factoring?

Accounts Receivable Factoring, also known as invoice factoring, involves selling your unpaid invoices to a financing company. The factoring company takes over the process of collecting payments from clients. However, with accounts receivable financing, the invoices are merely collateral for the advance, and you continue to deal with your customers directly concerning the collection of invoice payments.

What Is the Process of Accounts Receivable Financing?

When your business applies for accounts receivable financing, you submit the accounts receivables you want to use as collateral and other required documents to a lender. After your application is approved, you receive approximately 80 percent of the value of the submitted invoices as an advance. You can use this funding for whatever needs your business has such as rent, inventory, equipment, and the salaries of your employees. When your clients pay their bills to the lender, you receive the balance of the invoice funds minus the financing fee.

What Are the Advantages of Accounts Receivable Financing?

Numerous businesses are hindered from paying their expenses, making improvements, and taking advantage of opportunities for growth because of gaps in their cash flows due to unpaid invoices. Accounts receivable financing helps to fill these gaps. You can obtain this form of funding even if your company’s credit is not good, because lenders are more concerned with the credit standings of your clients. The application process is easy, and approval and subsequent funding are quick. The only collateral you need is your unpaid invoices.

For more advice on accounts receivable financing, contact Signal Peak.