How to fit A/R financing into your budget

Justin Gordon

How to fit A/R financing into your budget

How to fit A/R financing into your budget

by Justin Gordon, SVP Sales & Marketing

Once you decide to use accounts receivable financing, you put your business in a better position to smooth over the cash-flow irregularities caused by delays in invoice payment. That ultimately means operating more efficiently and confidently, knowing you won’t have to wait weeks or months to receive payment for items that left your warehouse or services you provided long ago.

However, A/R financing is a form of credit that needs to be carefully considered and incorporated into your budget for the best results. Let’s look at how to fit this effective, flexible funding into your current operations.

Understanding A/R financing


Budgeting and bookkeeping

Accounting for A/R financing isn’t a particularly confusing or difficult process, but your business needs to account for it in terms of planning for the future as well as day-to-day bookkeeping. To start, make sure you have a complete understanding of the specific nature of the financing agreement you reached with your financial institution. Understand exactly when to expect money to come in after you pass along an invoice to them, as well as exactly how much should arrive based on the amount owed.

A deep knowledge of the processes related to your specific financing agreement means you know what to expect and how to include it in your budget, avoiding errors and oversights that can make financial management more complicated and difficult. If the financial institution you partner with provides the majority of the funding up front and supplies the remainder upon collection from your client, for example, the last thing you want to do is budget as if you receive the full amount as soon as you pass along the invoice.

You also want to prioritize the accurate, effective recording and tracking of invoices. Now that you have a third party – your partner bank – involved in the accounts receivable process, any errors related to these unpaid bills can be more costly and time-consuming to correct. That’s especially true if you’re using A/R financing for some, but not all, of your incoming invoices. A little extra time and effort goes a long way toward avoiding mistakes and keeping everything running smoothly.

Targeting projects and other financial needs

One of the most common reasons businesses start using A/R financing is to address emergent financial needs created by the gap between delivery of goods or services and receipt of payment. For many companies, this means handling financial responsibilities such as meeting payroll or a major, unforeseeable repair bill. However, that’s not the only way in which invoice factoring can aid your business.

Whether you already have an arrangement in place with a bank or are considering one for the future, it can only help to broaden your perspective of how A/R financing can help your business. The credit you receive in exchange for your invoices can be put toward nearly any legitimate business purpose. Outside of addressing emergencies, you can add money to your budget to take on a variety of optional but beneficial projects with minimal delay.

Whether it’s upgrading equipment to improve production output and create the potential for more sales or investing in employee training to boost productivity, there are many ways the funds you receive from A/R financing can help your business. As you review your budget, profit and loss statement, and similar vital documents that provide an overview of your company’s current situation, remember that A/R financing can be used to address opportunities as well as unexpected needs.

To learn more about how to put A/R financing to work for your business, get in touch with TAB today!

The post How to fit A/R financing into your budget appeared first on TAB Bank.


About the Author

Justin Gordon

Justin joined TAB Bank in 1999 in a sales capacity and soon became the bank’s National Sales Director providing direction for TAB’s business development efforts and supervising TAB’s inside and outside sales teams. Justin has over 20 years of experience in providing leveraged asset-based lending and factoring credit facilities to small and middle-market companies from a wide array of industries. During his tenure at TAB, he has successfully developed and managed regional and national sales origination teams. As a results-oriented strategic leader, he has developed a track record of driving incremental revenue growth as well as maximizing total profitability contributions while maintaining exceptional client relationships and minimizing risk. He is a graduate of the Graduate School of Banking at the University of Wisconsin –Madison where he also completed the Executive Leadership Certificate from the Wisconsin School of Business.<br><br>As Senior Vice President for Sales and Marketing, Justin provides leadership and direction for the bank’s revenue growth, business development, and marketing strategies.

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