Accounts receivable financing offers business owners a unique and powerful strategy for managing cash flow issues and cutting down on the time spent waiting for payments to arrive. By using the invoices already sitting with your accounts receivable department as collateral for a line of credit, you can bridge financial gaps and more readily access the funding your organization needs to continue developing.
The basic function of accounts receivable financing is clear, but how can you tell if it’s good for your enterprise in particular? Consider these questions as you weigh your options for boosting working capital and taking advantage of your unpaid invoices.
Does your company regularly wait for payment?
Outstanding invoices can be a major pain point for small-business owners. Because immediate payments on business-to-business transactions are uncommon – you may wait as many as 90 days for a payment, whether by informal standard or specific agreement – cash flow problems can continue to arise even if you have a steady stream of transactions and a healthy relationship with your clients. A financing option that allows you to essentially exchange this asset for a near-immediate payout from a line of credit takes the delay in payment out of the equation.
Of course, the problem of waiting for payment can be more significant when your business has heavy sales in certain times of the year and less activity in others. In this case, waiting to get paid can create additional hardship – and an asset-based strategy like A/R financing can be an even more successful strategy.
Do you clients generally pay on time?
Although waiting for payment can be a major reason why business owners seek out options like A/R financing, it’s important to recognize the limits of the receivables financing company you work with as well. Many financial institutions won’t take on invoice debts that are older than 90 days, as they frequently represent a risk that is too substantial. If you regularly have to deal with a significant number of clients who don’t align their payments with the standard of your industry – especially if they take more than 90 days to do so – you may have difficulty finding a reputable and reliable partner to provide A/R financing.
Do you want to change or improve your current facilities or operations?
Waiting for payment from clients leaves money stuck in a state of limbo, as it’s owed to you and can be counted as an asset but is inaccessible for the time being. If you have plans for growing your business, whether through expanding operations, purchasing new equipment, hiring new staff or something else entirely, the lack of available funds can be especially frustrating. Your business has fulfilled its role in the transaction but can’t access the funds its owed.
In this case, A/R financing is especially valuable. Instead of being at the mercy of your clients’ own financial situations and accounts payable department, you can quickly access the funding you need to make a number of improvements. If you have a strong, well-developed long-term business plan in place or simply come across a great opportunity you’ve thoughtfully considered, the last thing you want is to miss out because you can’t easily access the funds you’re owed. A/R financing gives you the power to act on these possibilities quickly and efficiently.
A/R financing is a great choice for a variety of businesses across the modern economy. To learn more, get in touch with the experts at TAB Bank today.
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