Owning and operating a business, regardless of size, means dealing with challenges, both big and small. As a business owner, one of your constant worries is funding. Whether it’s capital-related, for ongoing expenses, or perhaps growth and expansion, it’s important you have easy access to funds when you need it.
Like many other organizations, especially start-ups and smaller-sized firms, you most likely experience insufficiencies to cover all the costs of running your operations. This doesn’t mean that you can’t get help though. With business lending solutions such as accounts receivable or AR financing, you can acquire the capital or cash you need.
A breakdown of accounts receivable financing
Also known as factoring, accounts receivable financing pertains to the process wherein a business sells its receivables or invoices to a third-party financial solutions provider. This third party, referred to as the “factor,” buys the invoices lower than their actual value, and then delivers the payment to the original owner as soon as the transaction pushes through. In exchange for the “advance,” the factoring company collects the payment on the ARs and keeps the remainder as its profit.
Breaking down factoring further
Essentially, when you sell your accounts receivable, the factor will pay you in cash right away, giving you the funds you need to keep your operations funded. You can use it to pay for outstanding balances, satisfy payroll, purchase supplies and equipment, and even expand your business. At its core, it gives you immediate funds rather than having to wait for several weeks, even months to collect the amount indicated in the ARs.
Thanks to factoring solutions, even start-ups and small businesses can remain funded in today’s very challenging market. As such, it pays to give this a much closer look, especially when your business is a little low on cash and it needs ready cash to settle balances.