How To Finance Your Business Using Your Invoices

When you own a small business, there will be situations when you need money quickly to remedy an emergency. If you utilize accounts receivable financing, you can have the funds you require at all times while a factoring company works with your customers to settle the debts that they owe to you. This is how this type of lending works for your company. 

Types of Financing That Involve Accounts Receivables

There are two ways that your business can take advantage of this type of lending. One, you can sell the invoices that are owed to you by your clients to the company that you want to work with for a percentage of what they are worth. The organization will then reach out to your customers and set up a payment schedule with them to settle the debt. The second option is similar to this scenario except that, instead of purchasing the bills that need to be collected for you, the accounts receivable financing business gives you the equivalent of what is due and holds the statements as collateral. 

Consider the Duration of the Contracts

If you are considering this type of lending, you need to be aware of the length of the agreement with both your client and with the company you contract with.  Your customer should know what their payment terms are before you invoice them so that they are prepared to take care of it. Your factoring organization will want to purchase recent billings over ones that may have sat around for a while and are coming due. This allows them more time to work with those that are buying from you and prevents rushing on either party’s end. The accounts receivable financing organization will also wish to negotiate a contract with you that is acceptable with both of you. They will want to know that they have that income coming to them. This allows them to budget for their own expenses. Be aware of how long you want to collaborate with them before you sell anything to them. 

Advantages For Your Company

If your business has few items that you can borrow against, partnering with a factoring company is a great solution for you. You are able to obtain the cash you need when you need it instead of waiting for your customer to pay the invoice that you sent. You are able to keep all the shares of your company intact using accounts receivable financing since you will be less likely to look for investors if you have money available when you need it.