Access to working capital can be disrupted for a number of reasons. If your business is not seeing timely payments from clients on services that have been completed, it can spell out serious trouble for your cash flow. Thankfully, there are effective solutions available. When you need capital and have unpaid invoices in your possession, factoring services can be an ideal fit. To determine if this solution is right for your company, look over these details and gain further insight into how the service works.
The Traditional Approach to AR Financing
Traditionally, accounts receivable financing is a service built around using your unpaid invoices as collateral to secure an advance. A lender will review the eligibility of your receivables and purchase qualifying options from you. You will receive a portion of the total value immediately, then receive the difference after you pay a service fee and the lender collects the debt from your customer. When you need access to capital fast, AR financing offers an efficient way to achieve this goal. However, there are some alternatives worth noting before you make your final decision.
The Alternative Paths of Factoring Solutions
Instead of following standard factoring routes, some business owners are looking at options like invoice financing. With this arrangement, you are given the option of receiving a loan instead of an advance. While you still receive the money you need to stimulate your company’s cash flow, you will be expected to pay back the borrowed funds and any additional interest. Some companies prefer loans to advances because the lenders are not as restrictive with which invoices qualify for the service. Both services have multiple fees attached to them, which should be accounted for when weighing out your options.
The Advantages and Disadvantages of Accounts Receivable Financing
There are several pros and cons to note when it comes to AR financing solutions. One big advantage is having immediate access to capital. Cash flow is crucial for everything from covering operational expenses to investing in the future of your business. However, many businesses find the fees attached to alternative financing services to be a drawback. If your company has limited funds to begin with, paying service and maintenance fees to receive an advance or loan can have a negative impact on your budget. Be mindful of all associated costs to determine if this solution works for your needs.
Consistent cash flow is key when it comes to the long-term success of your business. To ensure you retain access to working capital even when clients are late on making payments, review your options with factoring solutions.