How to Use Accounts Receivable Financing to Reduce Business Debt
Don’t drown your business in too much debt before you have the opportunity to succeed. Whether you’re a small business owner just getting started, or a mid-sized business looking to expand, accounts receivable financing can help you reduce your business debt while still growing your business. Find out how this dynamic strategy works and find out if it’s the right course for your financial situation.
Any size of business can utilize this technique. No matter how many invoices you collect, you typically have to wait in order to receive the payment. This waiting period can be up to 90 days, which is devastating for businesses with low cash flow. Instead, using accounts receivable financing, a Factor can give you the money you need upfront.
You will usually receive between 70 and 90 percent of the invoice, however, you’ll be paid in as little as 24 hours rather than months later. Because it isn’t a traditional loan, you won’t have to worry about making payments or using the cash for a particular purpose. This form of financing is incredibly flexible and hassle-free.
Not only do many businesses pay you in a few days, you also typically sign away any responsibility to secure the payment. Your lender will now take on the invoice and make any necessary contact with your customer should a payment be missed. Because of this increased liability, accounts receivable financing eligibility is typically determined based on your customer’s credit score, rather than your personal or business credit. This means that you can apply for this form of financing even with a low credit score, but you must ensure that your customer has a high credit score and is eligible.
While you won’t technically pay any debt, this financing option does cost you between 10 and 30 percent of your invoice, so it will decrease your overall income in the long run. However, this option is far more effective for many businesses than taking out a business loan with high interest rates. If you need flexible capital fast, few funding options can compete.
If you need large amounts of money for an aggressive growth strategy, accounts receivable financing may not be the best step for you. However, for a completely flexible, debt-free way to get the working capital you need on an accelerated schedule, use your accounts receivables for fast and secure funding. Enjoy minimal debts and maximum flexibility for your small business.