Accounts Receivable Financing for Your Small Business

It’s no secret that businesses of all sizes need money at some point or another. Whether you need funds to help purchase new inventory, pay bills, or meet payroll, additional money can be incredibly beneficial. Not all businesses qualify for loans, however. Fortunately, you have other options, including accounts receivable financing.

What is A/R Financing?

If your business doesn’t qualify for a traditional business loan, accounts receivable (A/R) financing is an alternative option to consider. With A/R financing, you receive an advance on invoices that have yet to be paid. Rather than waiting for your customers to pay you, a company provides you with what you need (minus fees) and your customers then pay the company.

Are There Different Types of AR Financing?

Asset Based Lending

Asset-based lending is a business line of credit or business loan that’s secured by your accounts receivable.

Factoring

Factoring is a type of AR financing in which you sell one or more of your accounts receivables to a company called a factor. The factor provides you with a majority of the total value until the customers pay their invoices. Once the invoices are paid, you receive the remainder of the total minus the applicable fees.

Selective Receivables Financing

With selective receivables financing, you have greater power to choose which accounts receivable you want advances on. You are also able to receive the full advance (minus) fees, rather than a percentage upfront and the rest later.

Which Option is Best?

Asset-based lending often comes with high fees and little flexibility to pick and choose which invoices you want advanced. Factoring gives you more wiggle room to choose the invoices you want advances for, but fees can be high and you don’t get the full amount upfront.

In general, selective receivables financing is the preferred choice. Fees are typically lower and you get the full amount upfront. You choose which accounts receivable you want to submit, or you can submit them all. You participate only when you need to, which is particularly helpful for seasonal businesses. additionally, selective receivables financing isn’t counted as debt. It stays off of your balance sheet and doesn’t have an impact on your outstanding loans.

If you need additional capital for your business but don’t qualify for a traditional loan, you have options. With accounts receivable financing, you get the money you need when you need it, allowing you to meet the needs of your business.

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