Accounts receivable (AR) financing, also known as factoring, is purchasing AR invoices at a discounted price. If your clients pay you in 30, 60, 90 days or more, you have an opportunity to derive liquidity from your invoices.
Factoring allows lenders to provide funds to start-ups, unprofitable companies, and even businesses in bankruptcy because financing receivables relies on your clients’ credit instead of yours.
Accounts receivable aren’t debts but assets. Leveraging them for financing is like outsourcing your AR department. Financing receivables allows you to benefit from numerous advantages.
Advantages and Benefits of Financing Your Receivables
- Cash in 24 hours
- No personal guarantees
- Gain insight into clients’ credit
- Get detailed statements
- No recourse even on non-paying accounts
- No arbitrary loan board decisions
- No fixed payments
- Funding increases with sales and receivables
- Focus on your business, not collections
- Ability to service large and/or unexpected orders
- More flexible and quicker than bank loans
- Accounts may qualify for free credit insurance
Some Popular Uses of Accounts Receivable Financing
- Funding operating expenses
- Taking advantage of bulk/early payment discounts when purchasing inventory
- Funding expansion
- Responding to unexpected demands and opportunities
- Taking on large new accounts