Accounts Receivable Financing: One Way to Speed Up Your Cash Flow
It’s an exciting time as a business owner when you have a consistent customer base and know you can depend on them to place new orders. Unfortunately, this scenario isn’t without challenges. Your company doesn’t have the credibility to bill upfront as a new business, which means that you need to produce the goods or services first and then send an invoice giving the customer 30, 60, or 90 days to pay. While this makes the customers happy, you still must purchase equipment or supplies and pay employees when you have little to no cash flow yourself.
This situation is frustrating because it also means that your company doesn’t have an established credit history. Credit card issuers and banks will likely express reluctance to give you a line of credit or business loan unless you put down a large amount of collateral. Invoice factoring may be ideal for your situation. It provides you with the financing you need before you can collect unpaid invoices from your customers. Another name for invoice factoring is accounts receivable financing.
If you choose to go this route, you need to find a factoring company and sell the face value of one or more customer invoices. The factoring company then assumes collection from your customers. Before approving you for accounts receivable financing, the factoring company will run a credit check and possibly contact references for your customers to ensure creditworthiness.
How Invoice Factoring Works
Invoice factoring is a quick financing option. You typically receive the funds within a few days. The factoring company buying the invoice will deduct its fee from your proceeds. They will typically advance from 80 – 95% of your accounts receivable.
Factoring rates can vary from below one percent to over five percent of the face value of the receivable. When a factoring company reviews an application to determine the factoring rate, it takes into consideration variables such as: a company’s sales volume, the credit strength of its clients, payment cycle trends in your industry, invoice amounts, and overall climate of your industry. Universal Funding offers rates as low as .55% and we fund up to 95% of your accounts receivable.
It’s not a Business Loan
Besides immediate access to cash and no longer having to collect your outstanding invoices, another benefit of invoice factoring is that you don’t have to assume any debt like you would with a loan. The face value of the invoice itself is your collateral. Because it is not a loan, you are able to utilize the funds however you wish. You also do not have to go through the lengthy loan approval process that is common with banks.
Factoring is flexible and scales with your business. You can use it as many times as you need to without having to reapply.
Accounts receivable financing can be an effective solution in the early days of operating a business or during those times of significant growth. To learn more about whether invoice factoring is the right solution for you, call Universal Funding today at 800.405.6035 or complete our rate form and a factoring specialist with get in touch with you right away.