AR Funding: Fast and Efficient

Posted by John Mauldin on Fri, Nov 15, 2013

Attention small business owners (this is any industry by the way–manufacturing,distribution, construction)………… are you having cash flow issues?
AR Funding

If you are then you’re not alone.

If you’re not then let me know your secret, because there are very few businesses out there that efficiently manage cash flow without a little help.

Of course we all know where your cash flow comes from…..if you said your company’s operating cycle, then you’re right. This is of course converting your accounts receivable to cash.

We all know that it can take up to 30, 60, or even 90 days sometimes to collect accounts receivables. You can’t efficiently run a business when your customer base takes that long to pay.  Face it, you as a business owner have daily needs that require cash:

  • Pay your employees
  • Pay your vendors
  • Business development (those trips to the golf course to entertain your customers cost money as well)

AR Funding…………………….

So what do you do when you need a little help with cash flow?  You do what a lot of business owners do. You turn to a form of small business financing known as AR funding or factoring.

Factoring is simply selling your credit worth receivables to a third party known as a factor.  Advance rates vary but are typically around 80%.

Once the invoice is paid, then you get the remaining portion back less any applicable fees.

This is a great way to bridge the gap between when an invoice is billed and when the cash is collected.

The Benefits of Short Term Financing

Here are some ways your business can benefit from obtaining short term financing.

  • Short term business loans like factoring facilities are easily accessible.  With the advances in technology, many banks and small business lenders have made it fast, easy, and efficient to obtain small business financing such as factoring facilities. In some cases it can take only a few days. In many cases, there is very little paperwork required.

In fact, if your business uses a factoring facility through a small business lender or factoring company, and you request a credit limit on one of you customers, it may take only 24 hours to get the credit limit approved (depending on the strength of the company).

  • Short term loans are just that…..short term. You as a business owner are not indebted to a lender or bank for a significant period of time.
  • Depending on the type of financing you go after, it doesn’t always break the bank (no pun intended). 

If you obtain a factoring line, then you may only pay fees based on the outstanding invoices.  If you factor invoices related to strong credit worthy customers that could pay quicker, then you may save some money on the fees paid while improving cash flow.  In the time I’ve spent in the commercial finance industry, I’ve seen so many businesses that have benefited from the use of short term financing and at the same time keep fees to a minimum. 

  • Short term business loans can provide relief when your cash flow is tightening. There have been many instances where I have seen a lot of small businesses waiting for a large invoice to be paid resulting in cash flow becoming tight. This is where a short term business loan such as a factoring facility can help alleviate that strain.

Proper cash flow management is a very important part of running your business. Investing in a factoring facility can really help make managing your cash flow easier. Beyond that though, making sure you have a quality customer base is important as well. If you own a small business and you find that these two things you have a hard time with, then hopefully following some of the strategies mentioned above including investing in a factoring facility can help you get your business back where it needs to be.

Schedule A Cash Flow Consultation        

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