Account Receivable Financing

Traditional Loan Not For You – Consider Alternative Method

Are you a small to medium size business trying to establish yourself with your target market? Have you extended credit to your new customers in the goal of building rapport with them? Are you in that position where you are waiting for these payments to come in, and yet you also need funds for other business needs? You could use the traditional method of going to the bank to get a loan. However, you will need to complete all the paperwork and then wait to see if they approve you or not. There is another way of acquiring funds via factoring company and it may be the best method for your situation.


It is called Accounts Receivable Financing or also known as Invoice Financing. Here is the overall process of how it works: first, you sell your unpaid invoices that you are waiting for payment on to a financing company, also known as a factoring company; second, they give you a percentage of the funds quickly; third, they now collect the funds for you and then give you the remaining portion after they take their agreed fee.

As with most things in business there is a pro and con list to everything. This decision should not be made lightly or quickly so here are the main points to consider. The benefits can be: one, you receive your funds quickly likely within 24 to 48 hours; two, transferring the work of letting them collect on these unpaid invoices for you will let you focus your time and energy on other business goals that may have a higher priority such as sales or investments.


There are a few other factors you should consider though which are: one, your customers still have to pay their bill which means you should make sure that you think they are good for the payment before you sell this to the factoring company; two, they will be subtracting their fee from the amount they recover which means less profit to your bottom line; three, customers can be emotional and do not operate on pure logic and reasoning so some of them may not like working with a third party when it comes to their money owed to you.

So, if you are in a position where you could use some cash-in-hand, are ok with giving up some of your profit, then perhaps the Account Receivable Financing method would work best for you.

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