Your business’ finances are basically what gives it life. With it, you can keep your organization not just afloat, but also prosperous. It’s what you need to expand, while also ensuring that you meet your financial responsibilities, such as your debts, utility bills, loans, and payroll among many others.
Without it, on the other hand, you may find yourself taking out, even more, loans than you can afford, laying off employees, selling essential assets, or worse, on the verge of giving up.
Before you do any of these though, know that what you’re going through is something that happens even to the best business owners. What made them keep going through is having back up plans that helped them address cash inflow problems. And an essential part of these plans is converting their invoices into usable funds, through the process called accounts receivable funding (or financing), or simply AR financing.
How this financing method works
It’s important to understand that accounts receivable financing isn’t a type of loan. Rather, it’s a service that serves much like a cash advance payment. It involves the invoices that your clients have not made good on yet, which means that they have yet to pay their dues to your organization.
The service provider, called “factor,” will give you an “advance” of about 70 to 90 percent for the invoice, and then take over or become the new owner of these receivables.
Once the factoring company receives the entire invoice payment, it’ll keep the remaining percentage (the 30 to 10 percent left).
The immediateness of access to funds
With accounts receivable funding, you no longer have to wait for such a long time just to receive the payments for your invoice. While you may not receive the entire value of the receivables, you should recognize the immense value of getting access to funds when you need them the most.