There are going to come times when your business runs into financial obstacles that seem beyond your control. When you are dealing with many clients who are not paying you in a timely manner for services or products you have provided, then you could be in a state of limbo when it comes to cash flow. While it might seem like there is nothing that can be done about unpaid invoices, there are alternative financing services that may help. Take a moment to review these details on factoring and learn more about how this option works.
What Is Factoring?
Alternative financing options are useful to consider when you need access to capital because there are many different choices to consider. The decision to factor your invoices, also known as accounts receivable financing, can be beneficial because it is quite straightforward. Unpaid invoices are assessed and qualifying options purchased from you by the AR financing company. You receive a percentage of the invoice value and receive the difference when the company collects the debt from your client. All you need to do is pay a small fee and you’ve got the funds you’ve been waiting on.
The Advantages of Factoring
Right away, factoring has a few benefits that can be quite useful. When you’ve been waiting a long while for payment from clients, the ability to receive an advance on the funds you are owed can be a lifesaver. Unlike other financing options like loans, you are not borrowing any money with this option. You receive the advance and pay the fee out of the value of the invoices. You will not need to worry about sinking into debt or your credit taking a hit because of the service. It is a great way to stimulate cash flow.
Considerations With AR Financing
While there are plenty of benefits to this service, there are also a few drawbacks of which to be mindful. The fee involved with AR financing can sometimes be substantial. If you think you can wait to receive payment from the client without suffering major losses, it might be best for you in the long haul. Additionally, not all invoices qualify for the service. Reach out to a company that specializes in AR financing and get a better idea of which invoices are most likely to be approved for this service.
While you can’t always expect financial obstacles as a business owner, you can take time to create a plan of action in the event these problems occur. Learn more about factoring and determine whether it is a good fit for the future of your business.