If you own a small business, you may have had some struggles recently in getting enough capital to grow your business. You may have also experienced some cash flow issues. If you are unable to secure other means of financing, such as bank loans, you may want to consider accounts receivable financing. However, you first need to make sure that this type of financing is the right thing for your business.

Accounts receivable financing consists of selling outstanding invoices (receivables) at a discounted rate to a finance or factoring company that will provide you with the cash immediately and assume the risk of your receivable amounts. The amount of money that you will get for an account will depend largely on how old the receivable is. The more current the invoice is, the more you will get for it. Accounts that are over 90 days would typically not be accepted for accounts receivable financing.

Accounts receivable factoring does have a few benefits for businesses. It allows you to focus on more productive aspects of running your business, rather than trying to collect on your receivables. It also allows you to free up some of the capital that you have which is tied up in your inventory.

It is also a quick way of obtaining financing, as you will not be required to produce business plans or tax statements. It is one of the quickest ways to obtaining much needed cash if your business is experiencing cash flow issues.

Accounts receivable factoring does however, have the drawback of being one of the most expensive ways of financing a business. While the costs of financing for one month may not seem that high, they will add up over the year and are generally more expensive than other types of financing, such as a line of credit.

Related articles

• GE Capital creates unique $500 million financing structure to support the acquisition of Alcan Engineered Products alongside Apollo, FSI and Rio Tinto (eon.businesswire.com)