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Receivables Financing for Small Businesses: Get the Facts

receivables financing small business

You stay on top of your business commitments and your customers come first. You deliver what you promise, on time, every time. But, that does not mean your customers pay with the same punctual dedication. If you find that your business has much of its working capital tied up in accounts receivables from unpaid invoices, it may be time to access that capital and put it to work for you. But how?

We are not talking about hunting down each and every customer with an outstanding invoice and demanding prompt payment. Extending credit and grace periods to your customers is part of good business. It keeps your customers loyal and coming back to you. There is a better solution known as receivables financing for small businesses, which allows you access to a portion of those unpaid invoices, and is perfectly designed to assist small businesses like your own.

 

How Receivables Financing for Small Business Works:

According to smallbusiness.chron.com, receivables financing allows you to sell your unpaid customer invoices of customers to a company that offers this funding solution. Basically, once you have delivered your goods or your services to your customer and an invoice has been sent, the company, known as a “factoring company”, advances you anywhere from 70 percent to 90 percent of the value of the specific invoice.

The invoice is in the factoring company’s hands now. So, when your customer pays their bill to the factoring company, it will then send you the rest of the balance owed to you, minus their fee, which is usually a very small percent of the total invoice.

This solution is not a loan, and there are no interest rates or repayment schedules. It is simply turning over the waiting game to a company that offers receivables financing for small businesses, so you can gain access to the majority of your working capital faster. The only cost to you is that small fee per transaction.

 

Some Key Benefits:
  • In some cases you may receive the cash within 24 hours.
  • This allows you to collect most of the money owed to you in a short period of time, allowing you to pay your business expenses.
  • Because you sell the receivables instead of borrowing against them, no credit history is require.
  • There are no loan payments to make because this is not a loan. You are not incurring any debt and that has a positive impact on your credit report and creates a solid balance sheet. If you need other types of financing it will not hinder your application.
  • This funding is a solution for new or struggling businesses. If you are facing a financial crisis, this is still a viable option to help you recover. You can use receivables financing even if you have filed Chapter 11 bankruptcy or have tax liens on your business.
  • The application is simple to fill out and it can be done online with ease. You will not be asked for tax returns or lengthy documentation as you might for loan approval at a bank.

According to yoursmallbusinessgrowth.com, many business owners are able to take advantage of offers that save their business money because of their improved cash-flow. For example, some of your suppliers may offer early payment discounts or bulk-order discounts on inventory or supplies you need. With improved cash flow you can afford to say yes to these money saving offers.

 

Some Considerations:
  • Selling your receivables means does not release you from the liability of a customer who does not pay their bill. Because of this, it is wise to choose invoices of customers that are creditworthy.
  • You should select a factoring company that you can trust will be kind, courteous and professional with your customer relations. You probably don’t want one that has a reputation of having an overly aggressive collection policy, because you could lose customers to a bad experience.

Faster access to your small business’s working capital can help your business thrive. To learn more about modern business funding solutions, contact Credibly today!