Account receivable funding is an often overlooked form of capital for many businesses. It has so many benefits, so it is certainly something you don't want to overlook when you are putting together the financing plan for your business. All businesses can benefit in some way from account receivable funding.



In a nutshell this process provides your business with quick access to capital that can help solve any cash flow issues that businesses tend to encounter from time to time. Your business would sell invoices or account receivables to a "factor" which would pay you for the discounted invoices. You don't get the full amount of the invoice, but you do get around 90% of it. It is worth it for your business because you don't have to wait for customers to pay, and you can also extend payment terms to potential customers to increase business. The increased repayment flexibility will make more customers buy from you.

Often times a business has to go further into debt to meet regular payment deadlines such as payroll, utility expenses, and inventory expenses. With account receivable funding a business can get almost instant access to capital once a sale is made, so they can make these deadlines and improve efficiency. Also, going further into debt requires higher interest payments, so this form of financing also helps your business avoid expensive interest payments.

This form of financing is perfect for a small to medium sized business that is getting started. Obtaining regular debt financing like a small business loan can be difficult without access to collateral which most startups simply don't have access to. Also, with debt financing you run into the previously mentioned interest problem. Another positive factor for younger businesses is that your business doesn't need established business credit to get approved. The creditworthiness of the client is all that is important because the factor wants to make sure the client will pay the invoice before they buy it from you.

If you are an entrepreneur you also have to love account receivable funding because it doesn't force you to give up ownership percentage or any control of your company like other forms of investment capital can. Investors will want partial ownership and control as part of their investment.

It is important for your business to consider this source of capital because it will always be available as long as you are making sales and have invoices to factor or sell.