Basics of Accounts Receivable Financing

When you’re in a tough place with your business’s financial situation, sometimes you have to think outside of the box. There are many options depending on what you need and what you can qualify for – accounts receivable financing offers an option that is simple and accessible to many business owners. Here are a few of the basics to get you started:

What It Is

Accounts receivable financing is also known as invoice financing. The name explains it: It’s when your unpaid invoices become a way to obtain money. Essentially, you receive the money you need by using your unpaid invoices as collateral to secure a line of credit. (You’ll read a summary of how all of this works in a moment.) This type of financing can be very helpful when you could typically wait weeks or even months before getting paid by your customers. Oftentimes, the funds are used as working capital to improve cash flow during slow seasons or to pay for everyday expenses. For instance, you could use the money to pay your employees, sustain usual operations, or increase business growth. It’s particularly advantageous for businesses which may not have the years of experience or credit scores to qualify for other types of financing since it primarily depends upon the worthiness of your accounts receivable.

How It Works

The process of applying for invoice financing is fairly straightforward and easy. First, you’ll find an invoice financing company you want to work with and apply by sending them your invoices and some basic information about your business. Remember that they will be looking at your customers’ credit scores to see if they will be able to pay up and the amount of money you receive will be determined by the value of your invoices. So carefully select which invoices you send as they should come from reliable customers. If you have enough quality invoices, the financing company will approve your request and send you the funds. In the meantime, you will continue to collect your payments as usual. You now have a line of credit to draw funds from as needed, simply by using your unpaid invoices to back it up.

When it comes to running a business, you may already have the resources you need to get the funds you want. With enough invoices from reliable customers, you can obtain a line of credit and be on your way to sustaining and improving the growth of your business.