Accounts receivable financing is a kind of financing option that provides entrepreneurs and business owners an opportunity to secure money from lenders against outstanding invoices.
The lender – typically an accounts receivable financing company – will advance you money which is a percentage of the outstanding value of the invoice.
However, the company charges you a fee for every week that the invoice remains pending.
This kind of financing is favored by borrowers because it is secured against raised invoices.
The reason why businesses secure accounts receivable financing is that they want to use the cash which is otherwise tied up with unpaid invoices. It helps in the smooth running of the cash flow so that you can have ample cash available for your daily business operations.
Moreover, you can also payoff your own invoices, disburse payrolls, and make timely investments in your business.
How to Best Finance Your Accounts Receivable
Before going for accounts receivable financing, it must be understood that it is a kind of recourse financing. It means if you are securing accounts receivable financing against outstanding invoice, it is you who will ultimately be responsible for their payment.
In some case, the lending company will agree to follow up with your customer in order to receive payments against the invoices. But at the end of the day, if the customer does not make the payment, you will be required to settle the entire debt.
In order to secure the best accounts receivable financing, you should keep in mind the following points discussed in the article.
Selection of Accounts Receivable
During the course of business, you may raise quite a lot of invoices against several customers.
Out of all these invoices that are outstanding at any point in time, you must have a clear idea which customers will make payment smoothly and swiftly.
You must select all these invoices, and should secure financing against them. This way, your invoice will be paid swiftly, and you will have to pay little amount in terms of fees.
The more time it takes for the invoice to get paid, the more money you will be required to pay to the financing company.
Choosing the right Accounts Receivable Financing Company
Another important aspect of securing this kind of financing is to find the right company.
There are many lenders that are ready to advance you against your outstanding invoices. However, you must find the one that advances you the highest percentage of the outstanding amount.
Most companies would lend you 80% to 90% of the outstanding amount. You must find the one that advances you the highest percentage.
Another aspect is the fee charged by the company. The fee charged by the company should be the prevailing market fee. In fact, it is better if the fee is lower. This will have less adverse effect on your net profit.
As discussed earlier, it is ultimately your responsibility to get the invoices paid. In this regard, you will be following up with your customer regularly.
However, if the financing company also agrees to carry out follow ups for payments, it will become an added advantage for you.
Your customer will also know that you mean business. Involvement of another interested party will add urgency to the bills payment.
Fulfil requirements for Financing
It is comparatively easier to qualify to accounts receivable financing if compared to other kinds of traditional loans.
The technical reason behind this leniency is that the lender hinges his decision on the capacity of your customer to pay the invoice on time rather than your own credit rating and financial strength.
Documentary requirement for accounts receivable financing is very simple. The most important documents in the entire scenario, are the invoices that you wanted financed through the company.
You may also be required to produce your driver’s license and bank statements.
Keep all these documents ready, make photocopies, and keep in a place that is easily accessible.
Check online portal of the Lender
Several accounts receivable financing companies have a portal through which you can apply for the facility.
Check their portals for the requirements. Some of these portals are auto-synced with accounting softwares. This will save you from entering the invoice values one by one into the portal.
You can simply upload your invoices into the lender’s system. Online applications are easy to fill, and also take less time in processing rather than the traditional application methods used by banks and financial institutions.
Best Accounts Receivable Financing Companies
BlueVine is a company that specializes in accounts receivable financing. Business owner may submit their outstanding invoices to company, and secure financing up to 5 million dollars.
BlueVine usually takes around 24 hours for processing an application. Disbursal is made within two to three days.
If you have secured financing from Blue Vine Once, your subsequent applications will be processed more quickly since they already have your data in the system.
It is another financing company that specializes in invoice financing. The operations of FundBox are completely online.
You can secure funding of around 100,000 dollars through this company. The good thing about FundBox is that it would allow almost 100% financing against your outstanding invoices’ value. The repayment method is similar to the traditional lending. Fee charged by FundBox is lower than BlueVine.
Another point to note whether you are working with BlueVine or FundBox is that both of them would like to see your business history. How long you have been in the business? What is your average yearly turnover? Brace yourself up to face such questions during the process.
The Final Word
Accounts receivable financing comes in where you are facing cash flow issues in your business either because of your own operational problems, or seasonal trends.
Through invoice financing, you can free up your cash outstanding on the part of your customers, and use it for running your day-to-day operations without the need to inject more capital.
It is better way to capitalize on your outstanding invoices immediately rather than waiting for days for your customers to pay you in cash.