If you’re curious about accounts receivable financing, you’ve come to the right place: After reading this post, you’ll have a better understanding of whether or not it’s right for your business.
What Is It?
As explained on Investing Answers,accounts receivable financing is a way for companies to sell receivables in exchange for cash, which goes toward funding the company’s operations. It is also sometimes called factoring. The money customers owe for goods and services makes up a given company’s accounts receivable.
How It Works
In an accounts receivable financing transaction, the lender buys the borrower’s unpaid invoices. The payment acts as business funding, typically for short-term needs. Some lenders take over the collection of the unpaid invoices at this point, meaning that the borrower will no longer have to deal with attempting to gather payment.
Qualifying and Applying
Businesses need to meet a few qualifications to be eligible for accounts receivable financing. At the most basic level, they need to have outstanding invoices that a lender can purchase. Additionally, the lender will want to see that the customers in question are creditworthy—that is, likely to be able to pay the invoices back. Other items a lender will likely need include information on any liens on the receivables, an accounts aging report, and proof that your company is in good standing regarding corporate taxes.
Be sure to double-check all of the requirements when a lender sends documentation regarding what they need. Also be certain to read the terms of repayment. For instance, your business may be on the hook if customers do not pay their invoices.
Applications for this type of financing can often be done online and in a short period of time. Approval or rejection typically comes within a matter of days. If approved, the borrower notifies customers of the change in the billing address. The lender will now send funding to the business in exchange for a portion of the invoices they have obtained.
Want to keep learning about financing options and other topics? Look no further than Whitefish Funding’s fresh blog content.