3 Key Things You Should Know About Accounts Receivable Financing
Regardless of the type of industry you’re in, running a successful small business entails maintaining steady cash flow throughout the month. Keeping adequate working capital on hand isn’t always easy, though, especially when you have outstanding invoices that customers have yet to pay. If your customers are taking 30, 60 or even up to 90 days to pay invoices but you still need to cover essential expenses in the meantime, you may want to consider getting accounts receivable financing, also known sometimes as factoring. This unique financing method allows you to sell outstanding invoices to a factoring company in exchange for a substantial advance on the amount. To learn more about this unique financing method, its potential benefits and whether it could be a helpful tool for your company, keep reading.
1. It Can Help During Slow Shopping Seasons
While certain times of the year can bring an influx of new sales, other times can mean everyone, including your customers, has to keep an eye on expenses and delay certain payments. For instance, while the holidays at the end of the calendar year may bring in some new business, New Years can sometimes have the opposite effect, encouraging people to revise their budgets and spending habits. If your customers have been delaying payments due to possibly overextending themselves in shopping-heavy seasons, factoring can help you get by until habits return to normal.
2. You Won’t Have To Deal With Collections
Depending on the arrangement you sign, many factoring companies will take over collections for you. This means that if a customer doesn’t pay their invoice, you won’t have to be the one calling to collect. Additionally, in many types of factoring arrangements, especially non-recourse ones, you won’t be on the hook for the outstanding amount due to customer non-payment.
3. It Can Carry You Through Industry-Wide Downturns
Sometimes certain industries experience temporary downturns. While this is normal, having enough cash to weather the storm is essential. With invoice factoring, you provide yourself a small buffer to get through until payments arrive in your bank account and business picks back up.
Ensuring your business’s success means making sure you always have adequate working capital on hand. When unpaid outstanding invoices are tightening up your cash flow, though, you can make ends meet until your customers pay by using accounts receivable financing to cover your expenses. Keep these important facts in mind and you can confidently choose the right financing option for your company.