What is Accounts Receivable Financing? Here’s an overview!

 What is Accounts Receivable Financing? Here’s an overview!

Small & growing businesses need continuous cash flow to keep up with operational needs. For many of them, traditional means of financing may not be the best choice, considering the long list of requirements. That’s exactly where accounts receivable financing comes in handy. Services like financement entreprise Accord Financial offer this option for startups, growing brands, and small businesses, without complicated requirements. In simpler words, accounts receivable financing is the process of using the existing accounts receivables to get an advance. Below is an overview that may come in handy.

Why consider accounts receivable financing?

Small businesses often end in cash-strapped situations, where they expect to get money from customers and clients, but there is time in between. This may impact operations and normal business transactions, leading to a domino effect within the enterprise. AR financing is designed to accelerate cash flow. Rather than waiting for 30 to 90 days for the customers to pay the invoices, financial services can offer advance, which can cover up to 90% of accounts receivables at the face value. The process is simple and can be useful for small businesses that need to have enough money to stay afloat.

Understanding AR financing

Typically, a lender or financial institutions, such as banks, are interested in the balance sheet and credibility of your business. That’s not the case with AR financing, where the focus is on the customers. In other words, getting the advance is not constrained by financial covenants. With this form of financing, you can expect to get anywhere between $100,000 and $20 million, depending on the financial service you choose. If your business doesn’t qualify for conventional bank financing, or when there is a need to get money to keep up with current operational and cash flow needs, this is easily the best step forward. Truth be told, all businesses have to extend credit, but this can be really hard for smaller companies that have limited resources. AR financing resolves most of these issues.

Things to note

The rate for accounts receivable financing varies from one service to another, but lenders will consider a few basic things, like credit quality of your customers, overall business performance, and level of risk involved. The lender does take a charge/fee for this kind of financing, so you will get less than what you were expected to get eventually from customers.

If your company has a large concentration of many customers, accounts receivable financing can be really useful. Just review the terms and conditions in detail.

Paul Petersen