Unlocking Growth: How Accounts Receivable Financing Empowers Small Businesses
Ryan Altick
Vice President / Regional Sales Manager @ Bay View Funding | Accounts Receivable Financing | Cash Flow for Small and Medium Sized Business Owners
For small businesses, maintaining healthy cash flow is paramount. Yet, challenges like slow-paying customers and unexpected expenses can often strain finances, hindering growth opportunities. In such scenarios, accessing additional working capital becomes essential.
Accounts receivable financing emerges as a lifeline for businesses navigating cash flow gaps. Here's a brief overview of how it works and its benefits:
The Basics of Accounts Receivable Financing:
When a business issues invoices to customers for goods or services provided on credit, it can sell these unpaid invoices to a third-party financial institution, known as a factor.
In exchange for the invoices, the factor advances a significant portion of the invoice value upfront, typically around 80-90%.
Once customers pay their invoices, the factor deducts its fees and remits the remaining balance to the business.
Benefits for Small Businesses:
Improved Cash Flow: By converting accounts receivable into immediate cash, businesses can maintain steady cash flow, meeting financial obligations and seizing growth opportunities.
Flexibility: Unlike traditional loans, accounts receivable financing doesn't require collateral, making it accessible to businesses with limited assets.
Risk Mitigation: Factors often perform credit checks on the business's customers, reducing the risk of non-payment or default.
Time Savings: Outsourcing credit and collection activities to the factor frees up resources, allowing businesses to focus on core operations.
In essence, accounts receivable financing empowers small businesses to bridge cash flow gaps, unlock growth potential, and thrive in today's dynamic business landscape.