Accounts receivable financing is an alternative to traditional bank loans and can be an excellent source of short-term working capital funds used for daily business operations.
What Is Accounts Receivable Financing?
Accounts receivable financing simply means that a company agrees to sell its current or future receivables to a financial organization. That organization assumes the risk of the receivables and in return provides a specified amount of funds to the business. The business receives its cash, and the invoiced customer pays the financial organization directly instead of paying the business. The financial organization typically offers a part of the amount of the receivable, for example, 80 percent, with the actual percentage dependent upon the quality of the receivables and the history of the customers.
The Benefits of Accounts Receivable Financing
Accounts receivable financing offers these benefits:
- The business can have quicker access to funds for immediate or unanticipated needs.
- There is no obligation for customer purchases that are not made. It is not a fixed commitment like a bank loan.
- Funds can be used for any business expense, freeing-up existing working capital for other uses. That includes purchasing more inventory to sell, purchasing equipment, or investing in more marketing.
How to Apply for Accounts Receivable Financing
- Review the status of open collectibles and forecast future collectibles. Consider how much money you will need compared to the invoiced amounts available.
- Gather the documentation needed for the application. The financial organization will want to review your business receivables aging report, the creditworthiness of your customers, your business tax information, any liens that may encumber your receivables, and the background and creditworthiness of the business owners.
- Submit the application and receive the funds needed.
- Follow-through on payments and settlement of the receivables.
Seek Expert Financial Assistance
Contact First Source Capital, based in Wakefield, MA for more than 50 financial products and solutions for businesses of all sizes. Our commercial finance options can give new business owners the capital you need to thrive and grow. Our team of trained financial professionals is ready to assist you.