Financial setbacks might be par for the course in the business world, but that doesn’t mean you need to simply accept your fate. When you run into issues with the budget, the best way to overcome the problem is by tackling the source. In some cases, this might be addressing the fact that you’ve been waiting a long time for clients to pay you for completed services. In this scenario, you might be able to benefit from an alternative financing service known as factoring. Use this guide to learn more and see if the service fits your needs.
What Is Factoring?
Accounts receivable financing is a service that focuses primarily on an asset that many people overlook: invoices. A company specializing in this form of financing will assess your invoices and determine if any qualify for the service. The invoices that fit the criteria will be purchased from you and you will be given a portion of the value as an advance. Once the lender collects the full debt owed from your client, you will pay a fee and be given the difference on the balance. The service is a straightforward and simple way to stimulate cash flow in a pinch.
How Does AR Financing Help?
As mentioned, the biggest advantage to factoring is the fact that you will have access to working capital fast. Since your clients have been taking a long time to pay you for services, being granted this type of advance can be a huge help in keeping your company afloat. What’s more, this type of service is different than other financing solutions like loans and credit lines. You are not borrowing any money, so you won’t need to pay anything back. Instead, you are given an advance on the money you are owed and are responsible only for the service fee.
Is AR Financing Always the Right Fit?
Though it can offer a number of excellent benefits to you and your business, AR financing is not always going to be the right solution. If your company does not have any qualifying invoices, then you will not be able to take advantage of what the service can offer. Additionally, there are some lenders that charge a high amount for the service itself. Before you agree to anything, it is best to read over all associated paperwork and guarantee you have a strong understanding of what will be expected of you.
The decision to explore factoring as a financing solution can yield some impressive results. Take time to find a lender that offers this service and determine if it can help you stimulate cash flow and stay on top of consumer demands.