5 Ways Receivables Financing Benefits Your Small Business

Posted at 18:31h in Small Business Financing by Jake Dacillo

Alternative lending can be a welcome solution for small businesses that need fast financing, but have trouble qualifying for a traditional loan. And while there are many different funding options within the alternative lending space, receivables financing can be a great choice for small businesses that rely on customer invoices to maintain cash flow.

Receivables financing (also known as accounts receivable financing or A/R financing) is an asset-based transaction where a borrower receives a cash advance from a lender in exchange for their unpaid invoices. Because a lender can advance funds immediately – often within 24 hours of application approval – A/R financing is a great choice for short-term, flexible funding.

While every business has different lending needs depending on their unique situation, here are five reasons why receivables financing might be a good option for quickly injecting cash into your small business.

1. Immediately Frees Up Cash Flow

Small businesses that rely on receivables can wait up to 90 days for customers to pay their invoices, creating cash flow deficiencies that can impact business continuity and success. With receivables financing, working capital can immediately be accessed, eliminating delays in handling recurring expenses and enabling businesses to pursue growth opportunities.

2. Provides Fast Funding When Your Business Needs It Most

Of all the lending options out there for small businesses, receivables financing is arguably one of the fastest ways to access working capital. Because customer assets are considered over personal assets, the underwriting process is quick and straightforward, with little to no paperwork required.

The application process takes just minutes, and once approved, funds can be received in as little as 24 hours. That’s why A/R financing is one of the best options for businesses experiencing immediate short-term cash flow issues.

3. Easier to Qualify for Than a Traditional Loan

In a receivables financing transaction, because a businesses’ unpaid customer invoices are used as collateral, a lender will place priority on the customer’s reliability and credit score. So, in most cases, if your customers have good credit and pay on time, your own credit score won’t be the ultimate deciding factor.

Lenders will look at the age, quality and amount of receivables that are outstanding. They typically prefer receivables that meet the following criteria:

Recent invoices with clear 30/60/90 terms
Invoices owed by stable, larger companies with strong revenues and good credit
Invoices for smaller denominations, which would be less likely for customers to default
Invoiced customers with strong repayment history

4. Flexible Terms Keep You in Control

Unlike the sometimes rigid terms and timelines associated with a traditional term loan, receivables financing lets you decide how much to finance, and only fund what you need, when you need it. You choose which receivables you would like to use as collateral, whether it’s one invoice or several. You can also continue to manage your own accounts receivables and maintain the relationship and communication stream with your customers.

An offshoot of receivables financing, called receivables factoring, is when a factoring company will actually take ownership of the unpaid invoices, buying them from the business owner at a discounted rate and then collecting on the balance. While factoring has its advantages, for the business owner who wants to remain in control of their collections, A/R financing is preferred.

5. Helps New and Struggling Businesses

If your company invoices business customers, it might be a good candidate for A/R financing if you’re also dealing with any of the following challenges:

Meeting short-term cash flow shortages or gaps due to receivables delays
Lack of cash reserves to capitalize on a business opportunity
Seasonal demands such as hiring additional employees or adding inventory
Desire to reinvest in the business or make needed improvements

While there are many options to consider when it comes to alternative lending for small businesses, receivables financing is great for borrowers with less than stellar credit and reliable invoiced customers, who need immediate, short-term funding.

QuickBridge offers a range of alternative lending options, including receivables financing, and works with small businesses to help them find the funding solution that offers the best fit at the right time.