Accounts receivable financing is one form of asset-based financing which allows business owners to get cash in their hands quickly when working with an alternative lender who will advance you as much as 100% of the value of your invoices. However, there will be a fee charged for each week that customers fail to pay that invoice, so it would be to your advantage to sell those invoices which are billing your best-paying customers.
How to Start A/R Financing
Here are the six steps involved in setting up accounts receivable financing:
- Choose the specific invoices which you would like to have financed
- Choose a specific alternative lender whom you would like to work with, and apply for funding
- The alternative lender will advance you some percentage of the face value of the invoices, usually somewhere between 80% and 90%
- Your business can then use these funds to manage business expenses. In the meanwhile, your alternative lender will assess a weekly charge until the customer specified on the invoice actually submits payment
- The customer on the invoice will actually pay the lender directly, whatever the amount of the invoice was
- The alternative lender deducts their total fees, which are based on the duration of time before the customer paid, and the remainder is then submitted to you.
No Payments from You
Although accounts receivable financing is structured in a similar manner to a term loan, there is one major difference. As long as your customer pays on the invoice as required, you will not have to make any payments to the alternative lender. So even though it’s very much like a small business loan, accounts receivable financing should never call for any payments from your business.
Considering Accounts Receivable Financing?
At Impact Commercial Capital, we do our best to help small businesses survive the uncertainties of the competitive business world. If you’re considering accounts receivable financing as a way to improve your cash flow, contact us today so we can discuss some options.