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Accounts Receivable Financing: What You Should Know

Do you need to use accounts receivable financing for your business? What’s important to know about this type of business funding? How you can you obtain it easily and affordably? Just read below and you’ll know.

Accounts Receivable Financing/Factoring

Small business owners realize the need to receive funding to grow their businesses and avoid cash flow shortages. Accounts receivable factoring can often help business owners overcome hard financial times with ease.

What is accounts receivable financing or factoring? This is one of the oldest forms of commercial finance. It’s also called accounts receivable funding. In fact, accounts receivable factoring can be viewed as an asset-financing arrangement based on which a company uses its receivables (outstanding invoices/money owed by customers) as collateral in a financing agreement.

The way accounts receivable factoring works is similar to selling debt to a collection agency. The amount of value assigned to the account is dependent upon the age of a receivable. There’re 3 primary types of receivables finance:

  • Asset-based lending (ABL)
  • Traditional factoring
  • Selective receivables finance

Small business owners know how hard it can sometimes be to get access to the necessary working capital. Business financing is sometimes critical to the growth of your business. Also, it can be of immense importance when paying the bills during occasional cash flow shortages.

With all this in mind, find a reputable business funding provider to work with. Consider turning to First American Merchant, a respectable alternative online lender that specializes in the high risk fields. (FAM) is an award-winning business financing company that can help you with accounts receivable financing. The rates are the lowest possible. The application is fast and hassle free.

Benefits of Accounts Receivable Factoring

Here’re the benefits you can enjoy with accounts receivable funding:

  • Cash is available immediately
  • Customer’s credit, not yours, is taken into account
  • Serves as a flexible alternative to traditional financing
  • Custom financing to fit your needs
  • No need for long-term contracts

Pros of Accounts Receivable Funding

There’re both advantages and disadvantages associated with each type of business financing, including accounts receivable factoring. Let’s pay attention to its pros:

  • No Collateral Is Needed – This type of unsecured business financing option requires no collateral in form of assets and guarantors.
  • You Can Retain Your Business Ownership – You aren’t obliged to give out part of your business ownership in order to obtain funding.

Cons of Account Receivable Funding

Below you can read some disadvantages related to this type of financing:

  • Higher Costs – This type of business funding may come at higher costs as compared to the rates associated with other types of business loans. In case you fail to pay back the amount within the predetermined period of time, the total amount that you’ll be charged is going to increase.
  • Lengthy Contracts – Some of these agreements are short and viable. However, there’re also lengthier ones. You should negotiate the length of the contract that works best for you and your business.

Accounts receivables financing aims to free up your small business’s cash flow that’s tied by unpaid invoices. You can use this type of financing as a tool to manage your small business’s cash flow. It’ll also help you continue to pay your employees and suppliers. Moreover, it’ll help you invest in business growth faster and more easily instead of waiting for your customers to pay their invoices.