Ways Accounts Receivable Financing Helps Small Businesses: Operating your own small business can be a roller coaster ride. The COVID19 pandemic has made the ride even bumpier for many. When your profit margins are already thin, the tiniest disruption in the supply chain can throw you for a loop. For small business owners, the threat of late or unpaid invoices has probably never been greater.
Small businesses need to maintain positive cash flow to keep the business running. When you don’t get paid on time, it affects your ability to meet your financial obligations. It sets in moving a chain reaction of events that could put all your hard work at risk. For example, failure to pay your bills could damage your reputation and affect your ability to get a much-needed loan in the future.
Finding the best financial business solutions requires carefully weighing your options and deciding what works best for your small business.
Many small businesses like yours are taking advantage of accounts receivable financing. Also called invoice financing, this means selling the value of your outstanding invoices to a financing company for a small fee.
Here Are Four Ways That Account Receivable Financing Can Help Small Businesses.
1. It’s fast. Accounts receivable financing immediately boosts your cash flow, often within a day. Your business cannot be put on hold because of unpaid invoices. When money isn’t coming in, your business is at risk. It would help if you continue operating efficiently. Cash on hand means you can pay your bills on time, buy needed stock or supplies, and payor hire employees. Better cash flow also means you can re-invest more easily in your business.
2. You do not pay interest with accounts receivable financing. It is not a loan. You are selling only the value of invoices that are owed to your business. You may choose to sell only a selection of invoices. You’re getting funds based solely on the value of the money you’ve already earned, not what you plan to make. If the thought of incurring more debt makes you shudder, you may want to consider accounts receivable financing.
3. You don’t need collateral or letters of credit. Essentially, the invoices you’re selling are your collateral. You’re not selling any of your business equity. You maintain control of your company. You have zero added liability and no new monthly payments. Accounts receivable financing is also a great option if your small business does not qualify for a traditional loan.
4. You don’t have to collect the invoices. The financing company that buys your invoices, also called a factor, takes care of all that. This saves you valuable time as well and administrative costs. You can focus your energies on the more pressing needs of running your business. Management reports from your financing company will keep you up to date on your invoices and better manage your cash flow.
A shortage of cash due to late payments can have a devastating domino effect on small businesses. Accounts receivable financing allows you to benefit from the value of the money you’ve already earned to bring stability, reduce uncertainty, and help prepare for future growth.