Cash flow provides the lifeblood businesses need to operate. Without it, business activities grind to a halt. For businesses facing short-term cash flow problems, accounts receivable financing may be able to help.
Accounts receivable financing, which is sometimes referred to as “factoring,” stands apart from many other financing options because it is a sale of an asset rather than a loan. In this case, the accounts receivable act as an asset. In short, accounts receivable form a balance of money reflecting what customers owe for goods or services they have already received from the company.
When a business obtains accounts receivable financing, it agrees to sell its accounts receivable at a somewhat discounted rate. The financing institution, in turn, delivers the agreed-upon sum of money, usually in a short window of time.
Who Uses It?
Businesses of all sizes can make use of accounts receivable financing, but it is particularly attractive to smaller, newer businesses. The reason is that traditional lenders, like large banks, tend to view less-established businesses with skepticism. This means that such businesses may have a harder time obtaining financing like loans. Factoring, however, may be much more attainable.
Another reason businesses turn to this financing option is speed: Even if a business obtains a loan from a traditional lender, the process can take weeks or even months. That may be OK for long-term funding and planning, but it is not useful if a business needs to solve cash-flow problems in the present or near future.
Factoring, however, tends to provide a very quick application process and turnaround time. This means it can also be used to jump on opportunities that call for nearly immediate funding, like taking advantage of a discount on a bulk order.
Topfund Capital‘s experts can help inform you of funding options like accounts receivable financing. To learn more, get in touch today!