When to Choose Accounts Receivable Financing

Author Team Coral Capital

When should you go for an Accounts Receivable Financing Facility

Your billable hours look great.

The problem is, your clients are taking their time paying their invoices.

Meanwhile, your business is suffering from a lack of operating funds. Sound familiar? If so, and if your business is in the growth phase, then it might be worth considering  Accounts Receivable Financing.

Accounts receivable financing, or invoice factoring, is an alternative form of commercial finance that provides immediate working capital to business owners. It uses accounts receivable as a basis for financing, providing those who use it with a fast and predictable cash flow.

Here are some instances where accounts receivable financing can be a good fit –

You Need a Quick Turnaround

There may come a time where your company is unable to wait for clients to pay their invoices. This could happen when funds are tight, yet payroll is due or manufacturing costs are stacking up. In this case, invoice financing is a quick, reliable and flexible way to navigate turnaround and nurse your business back to health.

*Keep in mind that factors charge a percentage of the total due based on the time it takes them to collect.

Traditional Lending Won’t Work

Traditional lenders often loath to fund businesses in new industries like technology, media and telecommunications—especially if these companies are just starting out.

Luckily, AR financing is a great option for companies with good prospects that may not have a strong overall history. Since traditional lenders only look at past financials, many companies find themselves in a position where they cannot secure funding, leaving them unable to move forward.

AR Financing doesn’t require a financial institution to take a leap of faith on the business itself; it merely relies on the receivables and the quality of the customers to pay for the financing.

Business Depends on the Season

If a business ramps up at certain times of the year and ebbs in others, then a traditional bank loan may not be a great fit. Because the bank may not understand the seasonal culture, they may not give the appropriate amount of funding—at the right time. They might give more cash availability than needed in low season, yet not enough during peak season.

AR financing mirrors the flow of revenues and billing so it scales up and down with business.

Credit is Imperfect

Banks often emphasize the credit profile of the business owner, not the business itself. AR financing does it differently. Factors focus on the credit history and ability of client’s customers. It allows a lender to focus on the assets being financed (invoices) even if the owner’s credit is flawed.

Did I miss a reason?

Do let me know through comments.

And now that you know when to opt for ar-financing, do read about the things to consider before signing up for accounts receivable financing.

Request AR Financing Services