Businesses often face cash flow challenges due to the time it takes customers to pay invoices. Accounts Receivable (AR) Financing, or Factoring, provides a solution by letting you sell outstanding invoices to receive immediate cash. This guide will help you decide if AR Financing is right for your business by reviewing the key benefits, qualifications, and considerations.
What is Accounts Receivable Financing?
AR Factoring allows businesses to improve cash flow by selling their unpaid invoices. Instead of waiting 30, 60, or 90 days for customers to pay, you receive immediate funds to bridge cash flow gaps and handle expenses. Here are the main aspects of AR Factoring:
- Funding Amount: Varies depending on the total of your outstanding invoices.
- Speed: Funds can be available as quickly as 3-10 days.
- No New Debt: Since you’re selling invoices rather than borrowing, AR Factoring doesn’t add debt to your balance sheet.
- Easy Qualification: Unlike traditional loans, AR Financing doesn’t require a high credit score or extensive business history.
Checklist: Is AR Financing Right for You?
Use this checklist to evaluate if Accounts Receivable Financing is a good fit for your business needs.
1. Does Your Business Have Unpaid B2B Invoices?
- Requirement: Only B2B (business-to-business) invoices are eligible for factoring.
- Why It Matters: B2B transactions generally involve reliable payment terms, reducing risk for the factoring company.
2. Do You Need Fast Cash Flow to Manage Expenses?
- Benefit: AR Factoring provides quick access to cash, often within 3-10 days.
- Why It Matters: Businesses facing immediate expenses—such as payroll, inventory restocking, or other operational costs—benefit from fast cash flow that avoids the wait for customer payments.
3. Are You Looking to Avoid New Debt?
- Benefit: With AR Factoring, you sell invoices rather than taking on a loan, so you don’t add debt to your balance sheet.
- Why It Matters: This can help maintain a healthier financial profile, especially for businesses wanting to avoid additional liabilities.
4. Does Your Accounts Receivable Exceed Your Outstanding Debt?
- Requirement: Your AR must be greater than any outstanding debt for your business to qualify.
- Why It Matters: This shows your business’s ability to manage obligations without accumulating excessive liabilities.
5. Do You Struggle with Seasonal Cash Flow Variations?
- Benefit: Factoring provides consistent cash flow to cover slower seasons.
- Why It Matters: Seasonal businesses benefit from a steady cash flow, which smoothens out peaks and valleys in income.
6. Are You Comfortable Selling Invoices at a Discount?
- Consideration: AR Factoring involves selling invoices at a discount, so you won’t receive the full invoice amount.
- Why It Matters: This trade-off is generally worthwhile for businesses that prioritize immediate access to funds over the full amount due.
How It Works
After approval, you sell your B2B invoices to the financing company at a discount and receive the cash upfront. With no repayment obligations, you can immediately use the funds to manage expenses and improve cash flow.
Ready to Get Started?
To apply, fill out our online application or, if you need assistance, contact one of our capital specialists:
- Phone: 646-440-4100
- Email: customerservice@reilcap.com
Accounts Receivable Financing can be a powerful solution for businesses that need quick cash flow without new debt. Use this checklist to assess your needs and see if AR Financing is the right move for you.
