Securing Capital for Your Growing Business
Growing a business can be an arduous process, especially when there isn’t enough cash flow to continue investing in growth. However, smart business owners know that by using unique financing solutions like accounts receivable financing, they can overcome the challenges posed by a low initial cash flow. With a little creativity and knowledge of different financing options available, your growing business can thrive.
Financing to Increase Working Capital
For many growing businesses, a traditional bank loan isn’t the quickest route to increased working capital. When a business is young it often needs cash in the short term to use for investments and expenses. By leveraging the sales it has already invoiced through accounts receivable financing, a company can gain access to cash right away rather than waiting for customers to pay.
With invoice factoring, you sell your company’s invoices receivable to a special company called a factoring company. That company pays you a percentage of the total amount due on the invoices, which usually ranges from 70% to 80%.
Although the factoring company charges you a fee, it also manages the collections process. Your growing business gets the cash it needs upfront, while the factoring company handles the details of getting the payments from your customers. Once the invoices are paid, the factoring company sends through the remaining percentage of the money owed.
Another accounts receivable financing option to consider when you are looking to boost cash flow for your business is asset based financing. With this type of financing you receive a revolving line of credit based on your company’s assets, which include equipment as well as invoices and accounts receivable. The credit line can increase as your accounts receivable grow over time.
No Loan Means No Debt
When you use your accounts receivable for financing, you aren’t taking out a loan, so you aren’t accruing debt.
This type of financing can be a smart choice for a growing business that still hasn’t established a credit score, or for a business owner whose personal credit rating isn’t high enough to get financing from traditional loan sources. That’s because the factoring company bases its decision on the creditworthiness of the customers invoiced.
You can secure capital for your growing business by using invoices for what you’ve already sold. With accounts receivable financing you get access to cash right away and leave the collections process to the factoring company, freeing you up to focus on continuing to build sales and customer relationships.