Few things are as important as cash flow when it comes to the profitability of your business. Without the necessary working capital, it becomes very difficult to keep inventory stocked and employees paid. This is one of the reasons so many companies finance their accounts receivable. Leveraging receivables to get needed capital is a smart and strategic practice, and the following four reasons should give you some insight as to why AR financing is right for your business.
1. Safe Collateral
Using your home, office building or vehicle is a dangerous way to go about securing the money you need for your business to operate. If something goes wrong, you’ll be in far worse shape than you were before you took out the collateralized loan. Using your accounts receivable provides the financing company with the guarantee they need, but it’s in the form of monies that your company is already owed. Securing funding using earnings as collateral is almost a risk-free proposition.
2. Quick Payout
Since your AR financing is approved based on the work you’ve already done and your history of steady business, the lending company is usually happy to advance the money right away. You can then get back to covering the general costs of operation without having to wait on either your client or the slow and tedious processing for which bank loans are so well known.
3. Maintain Control
This form of financing allows you to keep running your business as you normally would while speeding up the collections process. With other lending practices you may have to deal with a rigid repayment structure or even giving up some of the equity in your business. Financing receivables is a simple and straightforward way to improve your working capital management and continue providing services to all your customers.
4. Save Time
In addition to the time saved by the fast payout, think of all the time that you won’t spend trying to track down customers who have outstanding balances. One of the most arduous parts of any job is hustling to receive the money your company is owed. If those funds are already in your account, you’ll feel far less pressure and spend far less time pouring over the books to see how you can make everything work.
You can’t control the time frame in which payments are received, and yet you can’t let those outstanding receivables control your business. With AR financing you put yourself back in the driver’s seat, and you do so in a way that makes sense for your company and your cash flow.