Why Your Small Business Should Use Accounts Receivable Financing
Small business owners frequently encounter the need for an infusion of cash to obtain inventory, increase marketing, hire new personnel, handle payroll and purchase equipment. Your business may be thriving, but if your working capital is tied up in client invoices, it’s difficult to maintain the momentum to spur new growth. This is where accounts receivable financing can help free up your working capital.
Here are some reasons why accounts receivable financing can help your small business continue to prosper.
Keep Your Capital Free for Use
Often small business capital remains idle as clients delay paying off their invoices. This can cause a business to stagnate instead of surge forward. In accounts receivable financing, a factoring company advances you 75 to 90 percent of the funds from your outstanding invoices, which allows you to use that cash for immediate necessary expenses. When your clients pay their bills, the factoring company sends you the balance minus its fee.
Accounts receivable financing frees you from the burden of collecting payments from your clients. The factoring company undertakes this task, allowing you to devote your time and energy to your business. Additionally, obtaining a line of credit or a bank loan can be a time consuming process, whereas once you are approved for accounts receivable financing, you can have the cash you need within a few days.
Avoid Risking Collateral
Traditional lenders typically demand collateral such as your car, house, company, or inventory before approval, which puts your personal assets and your business at risk. However, factoring companies do not require collateral. Instead, they assess the creditworthiness of your clients before advancing you funds.
Continue Owning Your Business
Some outside investors require equity in your business as the cost of financing, but that is not how accounts receivable financing works. When you obtain funds for your outstanding invoices from a factoring company, you retain complete ownership of your business.
For more advice on accounts receivable financing and other aspects of small business economics, contact Muth Capital.