How To Decide if Accounts Receivable Financing Is Right for You
For potential clients, long payment terms for invoices can be an attractive benefit that puts you above the competition, but it can also be a detriment to your business operations. Business can be going well, but unpaid invoices can interrupt your cash flow for an uncomfortable amount of time. Here’s how to decide if accounts receivable financing is the right solution for you.
What Are Your Options?
There are a couple of different types of invoice financing, and it’s likely that one will work better for you over the others. For some quick cash from a hefty invoice, single invoice financing may come in handy. If you have a significant amount of inventory that you keep in stock regularly, you can use those products as collateral for a line of credit in inventory financing. If you have orders to fulfill but no cash or products in hand to complete them, purchase order financing can get you a loan. For accounts receivable, you sell your invoices for cash, minus a fee from the financing company. Depending on the financing institution you use, these methods can get expensive, but they are often faster than other funding options.
Do You Qualify?
Before you choose an accounts receivable option, you should make sure you qualify and hunt around for the right financing company. When you have things like invoices or inventory in hand, financing companies don’t need things like a high credit score to know they’ll get paid. You’re not actually the person paying the finance company the money, your client is, so your client’s ability to pay will ultimately be the most important part. The financing company may deal with your clients directly, so make sure you’re comfortable with their customer service. It’s also important that your company has been in business for a year or more and makes a minimum amount of money, which will vary by financing institution. For many, the company needs to be making at least $50,000. If you meet these qualifications, but your company hasn’t been doing well lately, and the projections don’t look great, you may run into some issues.
For companies with unpaid invoices, managing cash flow can be difficult. These hiccups can have long-term effects on your company, so it’s important to have a plan for slow periods. With accounts receivable financing, you can quickly and easily manage the cash you need to keep operating like normal.
