Your business can run into financial challenges for a number of reasons. In order to solve the issue at hand, it is best to turn to a financing service structured for the unique problem you are facing. When clients are not paying for services you have provided and unpaid invoices are stacking up, accounts receivable financing offers a practical solution. Though AR financing is straightforward in many ways, there are several details to consider before you make your final decision. Look over these points and learn more about making the most of this option.
Exploring Different Factoring Options
The classic method of factoring invoices involves selling the receivables to a lender in order to receive an advance on owed funds. In this arrangement, the lender assumes responsibility for collecting the debt and provides you with a percentage of the invoice value. While advantageous, there are often high fees attached to this full-service solution. One popular alternative is recourse factoring. With this option, the service fees are much lower. However, your business will be expected to purchase back the invoices should your client not make payments to the lender.
Understanding the Advantages of AR Financing
There are several benefits that come from exploring accounts receivable financing services. The solution is preferable to loans because borrowers are not required to showcase exceptional credit or put forth collateral outside of the invoices. Factoring also provides immediate cash to business owners. The longer it takes clients to make payments, the more likely it is your cash flow will be disrupted. By turning to AR financing options, you can retain access to working capital and find the funds you need for operational expenses and growth opportunities alike.
Learning About the Drawbacks of Factoring
It is also important to remain mindful of the drawbacks of using factoring solutions. Traditional AR financing often requires business owners to enter a lengthy contract where all unpaid invoices go to the lender. If you want to avoid this, consider spot factoring. This alternative allows business owners to select specific invoices they wish to sell. Another con to factoring is that lenders often charge hefty fees for the service. If your company is already experiencing cash flow troubles, paying these service charges can lead to further complications down the road.
If your business is dealing with customers who are not fulfilling invoices when they should, you need to know where to turn for help. Explore your options with accounts receivable financing and discover a solution that will deliver immediate cash and help your company stay one step ahead.