At one time or another, every business gets strapped for cash at a critical time. Whether you need the money to pay bills, pay workers, or further your business operations, you need to have the funds much sooner than later.
AR funding might be the timely solution to your cash flow problems. Exploration of how this type of funding works may be just what you are looking for to help your business. There are many companies that use this kind of funding. Some industries are construction, shipping, distributors, information technology and many others.
If you are in need of quick cash for your business, a bank loan might not be for you. They take too long and you might not get approved. As an alternative, you could sell your business' invoices to a funding company. There are companies that will pay you 85 to 90 percent of the invoices' face value after verifying its legitimacy.
Once the invoice is paid, you will receive the balance minus the funding company's fee. This process is known as AR funding or factoring, and the AR stands for accounts receivable.
Benefits of AR funding
There are many benefits to factoring invoices versus getting a bank loan. For one thing, you can get cash without going into debt because factoring is not a loan; you are simply selling an existing invoice. If you apply for a loan, it can take several weeks.
With factoring, you can have your account set up within 10 days and receive your money within 48 hours of getting the invoices approved. Also, your credit rating is not a consideration because the funding company, or factor, is looking at the credit of your customers.
When you use AR funding, you have flexibility over which invoices to sell, and there are no minimum or maximum numbers of invoices that have to be factored. Since many factoring companies have other fees, it would be a good idea to work with a company that tells you all of their fees upfront. If not, you may be charged additional fees that you were not aware of, which can increase your costs and reduce your income.
Another good thing about factoring is that no one tells you how you have to spend the money that you receive. To get the process started, your company and the funding company get to know each other via an online inquiry or telephone call. If it looks like a good fit, you can formally fill out an application.
When you submit the application, you will also have to submit a copy of last year's tax return, an accounts receivable aging report, a sample invoice, and proof of your company's legal entity.
AR funding can get you the working capital that you need during those times when your cash flow is not flowing. It is not a loan, so it won't get you into further debt. For others, it has been a proven method that allowed them to keep their business afloat. This just might be a way for you to navigate the choppy waves of everyday business life.