Small businesses are at the mercy of their clients. If you have slow-paying clients, you could find yourself unable to cover your bills due to a lack of cash flow or with the inability to grow your business even when faced with the opportunity. AR factoring may help you turn your unpaid invoices into the cash you need, allowing you to operate without missing a beat.
Accounts receivable factoring means an AR factoring company buys your invoice for a factoring fee. Let’s say you have a $5,000 invoice, there’s a 3% fee, and you are approved to receive 85% of the invoice upfront. You’d receive $4,122 upon the agreement and the remaining $728 after the factoring company collects from your customer. The total transaction costs you $150 and gives you access to cash upfront.
Check out the top reasons small businesses should consider AR factoring to keep their business operating or expanding below.
Small businesses often have less access to capital, causing them to have shorter payment terms. This can turn potential clients off that are used to getting longer terms or that don’t have the capital themselves to pay the invoice sooner. AR factoring helps you offer longer terms while giving you access to the necessary capital to keep your business thriving. It’s a win-win for both sides of the equation.
Free social media marketing and other free marketing tactics only get you so far. Eventually, the hype wears off and competitors with larger marketing budgets take your business. AR factoring helps provide you with the capital needed to take advantage of marketing opportunities that help you bring in more business while you wait for current customers to pay their invoices. It provides you with a better flow rather than halting everything while you wait to get paid.
Unexpected expenses can put a small business out of operation quickly if there isn’t enough cash flow. AR factoring helps offset this risk by providing access to cash now. This allows you to pay for those unexpected expenses, keeping your business afloat. Think of it as an instant savings account – factoring your invoices costs you a little bit of money, but it offsets the risk of not being able to cover emergency expenses that could otherwise put you out of business.
If you need to hire new staff, it may mean your business is growing, which is great news, but hiring is expensive. You need cash flow to have the resources to interview, hire, and train new employees. If you pay for employees’ materials, uniforms, or other necessary items, you’ll need cash available for that too. AR factoring helps cover these costs even while your invoices remain unpaid, allowing you to have more people on staff to continually expand your business.
During busy times, you may need to increase your inventory to keep up with demand. Increasing inventory requires cash flow, though. If your money sits in unpaid invoices, it may be hard to buy that inventory, which could mean losing potential business to your competitors. AR factoring helps reduce that risk by giving you the cash flow you need to build your inventory and grow your business.
Equipment financing can get expensive and is hard to qualify for, especially for small businesses. AR factoring provides you with the cash needed to buy the equipment outright – without financing. You don’t have to worry about giving up part of your equipment’s collateral in exchange for financing or not qualifying for financing because you don’t have an established business credit score.
AR factoring helps small businesses thrive. Whether you need the funds to meet standard operating expenses or you are looking to expand, it gives you access to cash that you’d otherwise be stuck waiting to receive for 30 – 90 days. Accounts receivable factoring is a cost-friendly way to get your hands on the cash that’s rightfully yours, but may take a while to come in, which could delay your business’s operations, ability to make ends meet, expand, or buy new inventory/equipment.
American Credit®, Inc website: amcredit.com