Your business may need funds for a great variety of reasons. Perhaps you need money to fund an expansion, pay for unexpected repairs, or cover all of the payments you owe suppliers. If your cash flow is temporarily smaller than it typically is, you might need to secure some financing.

Today, businesses have a broad range of financing choices to consider. You might want to get a small business loan. On the other hand – if making interest payments on a loan is potentially more than your business can handle, you may want to speak with an alternative financing institution about accounts receivable financing.

What Makes Accounts Receivable Financing Different?

Accounts receivable financing – also known as factoring – is much different from a traditional loan. Instead of borrowing a certain amount of capital from a bank and paying it back with interest, you borrow against your accounts receivable. A lender (in this case, known as a factor) takes on a portion of your accounts receivable. The factor then loans you a high percentage of the receivables, and you are paid the remainder of what was owed by your clients once they pay in full. Factoring is done for a fee, which is generally about one percent of the invoice amounts – and the fee is taken out of your remaining balance.      

The Top Benefits of Factoring

Factoring offers some considerable benefits to the business owner. If cash flow is a problem for your company at certain times of the month or year, accounts receivable financing can help you to get your business back on track in that regard. If your business sends out big invoices that may take some time to be paid, factoring may be especially beneficial to you. You won’t need to wait for a client to pay off a debt to get the cash you require to keep your business running smoothly.

Accounts receivable financing is the perfect strategy for numerous businesses. This kind of loan does not require you to make interest payments that put you in further debt. If you are curious about how factoring might help your business, talk to a factoring company representative today.