Finding the working capital you need when your business has cash flow obligations can be tough. You also need funds for the rare opportunities to make permanent gains in your annual volume of business by responding to special orders and seasonal demand spikes. If you are finding it difficult to maintain that balance without dipping into your company’s emergency reserves because the timing of customer invoice payments challenges your accounting, then you should consider using accounts receivable financing for capital.
Financing Accounts vs. Factoring
You may already be aware of the cash potential in your invoices if you’re familiar with factoring, which is the sale of the invoices to a third party for collection. Financing your accounts can sometimes be done with the same financial firms that factor, but you’ll also find this service available from other small business lending sources like hard money lenders. Financing your accounts involves taking an advance against them, it still outsources collection to the lender, but you get a check for the remainder after customers pay. That is, provided they pay on time. Financing invoices means accepting escalating fees for late payment, but when customers pay on time it tends to bring in a higher overall percentage of the face value.
Stabilize Your Pay Dates & Cash Flow
The biggest benefit to setting a schedule for accounts receivable financing is knowing when you can predict invoice turnover. This allows you to budget the capital on hand for those dates, providing the stability needed to meet all of your company’s financial obligations on time. This, in turn, helps you to stabilize and then improve your credit score. It also helps you maintain relationships with your suppliers and subcontractors, allowing you to continue enjoying their most favorable rates.
Work Your Growth Plan with Timely Reinvestment
It’s a lot easier to build and maintain the cash reserves you need to expand your services and make other investments in your business to ensure its success. Having pay dates you can count on means being able to budget for all the outgoing expenses by adjusting quotes to absorb the cost of financing. Then, when customers pay before their invoices are financed, you have windfall money to add to your reserves in addition to the budgeted savings plan. That lets you get to your five-year goals faster, so you might need to revise them after you see what accounts receivable financing can do for your business.
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