Getting your customers to pay for their orders by the date specified on the invoice has long been a challenge for businesses in a variety of industries.
You’re concerned that charging especially high late fees could prevent customers from placing an order with you in the future, but you also need the money that’s owed to you to keep your business going strong.
So, what’s the solution?
For many, it’s accounts receivable funding.
Accounts receivable financing, also known as factoring financing, allows you to sell any outstanding invoices/receivables to a financial company/lender for a reasonable markdown.
The financial company takes on the risks of these unpaid invoices and then gives you the cash you need.
So, what are the pros and cons of accounts receivable financing, and is it a wise move for your company?
Read on to find out.
The Pros of Accounts Receivable Financing
So, why do so many businesses choose accounts receivable financing as their top funding option?
First of all, an accounts receivable line of credit doesn’t require you to put up any kind of asset collateral. You’ll also be allowed to retain complete ownership of your customers, your invoices, and your business as a whole.
Your spending limit will also line up with your business growth, so you don’t have to worry about taking on more debt.
It’s also an excellent option for those who need access to funds as soon as possible, meaning that you’ll have the amount of working capital you need to keep on meeting consumer expectations.
Plus, usually lenders will collect the money directly from customer invoices, so you don’t have to worry about taking on any additional paperwork.
Potential Cons of Accounts Receivable Funding
Now, let’s examine the potential cons of receivables financing.
Depending on the lender you work with, the rate that you pay may be influenced by your clients’ history of making their payments on time or as close to on time as is possible.
Additionally, depending on the specific lender, you may have a longer contract period than you might expect — in some cases, between 2-3 years. Just make sure you understand the length of the contract and ask if shorter options are available.
Also, study up on common factor financing errors to know what to avoid.
In some cases, your customers/clients may think that you have to rely on accounts receivable funding because you’re struggling with your current cash flow. This may make them nervous about doing longer-term deals with you.
Explain the reason for your decision honestly and outright to retain consumer trust and to let them know that you’re not going anywhere!
Is Factoring Financing Right for Your Company?
The most important thing you need to consider regarding factoring financing is the specific lending company you’re working with.
At Dealstruck, our lending options make it easy for customers to pay down your loan through invoice payments.
We offer you real-time account access, and we don’t buy your invoices — we only let you borrow against them, meaning that you make no payments.
If you’re ready to apply for accounts receivable financing, click here to get the application process started.
We look forward to helping you get your business’s finances back in good working order — now and in the future.