The Biggest Advantages of AR Financing
Accounts receivable financing can be such a great way to recover working capital for companies whose funds may have otherwise been tied up. It’s one of the oldest forms of financing and it persists because it can work really well for the parties involved. Here are some of the greatest advantages to using AR financing for your business’s unpaid invoices, along with a brief explanation of how the process works.
Say a client has ordered a product from your business and you have delivered the product in a timely manner. You have also issued an invoice to your customer for the products rendered and have an agreement with the customer that they will pay you within a matter of weeks. Maybe you get an unexpected volume of orders, though, within those weeks in which you are waiting for payment. Great surprise for your business, yet you face a problem: without the funds you are due from that first customer, you are unable to process the volume of orders you have just received.
Enter AR Financing—the solution that pays you right away. You actually end up selling your unpaid invoices to a financing group and they pay within days, around 80% of the value of the receivables. This number Is figured in accordance with how likely your customer is to pay their invoice. Now, you have most of the funds in your hands and the customer is obligated to pay the financing company instead of you. This frees up your working capital in order to fill immediate needs and you no longer have to worry about collecting the money from your customers. Once the customers pay the financing company, they pay you the rest of what your invoice was worth, minus a fee of up to 5% for their services.
One of the biggest advantages to this type of financing is the immediate cash made available to you. Funds are typically distributed within a couple days after approval. It also doesn’t require any kind of surety from you as the business owner; that responsibility is primarily on your customer instead. Finally, it allows you as the business owner much more liberty in your ventures, and it saves a lot of time in the long run, as the hassle of tracking down customer payment is no longer up to you to handle.
In short, AR Financing allows you more freedom to continue running your company, even if your funds may have been tied up beforehand. Research this kind of financing today to see if it may be right for your business.