Accounts receivable financing — which is sometimes referred to as factoring — is a type of asset-based funding in which you use outstanding invoices (or any other receivables) as collateral.
In return, you receive a lump sum that is less than the total amount owed — usually around 70 to 90 percent, depending on the lender and the specific details of the financing agreement. When an invoice becomes due, your customer pays the lender directly, who keeps an agreed upon portion to cover principal, interest and fees. Any remaining amount is sent to you.
There are some notable advantages to accounts receivable financing, including:
Accounts receivable financing may be a suitable funding solution for your business if you have a significant amount of money tied up in outstanding invoices, want or need rapid access to a lump sum of working capital, and want to focus on running your business vs. handling loan administration tasks.
Conversely, it may not be the right solution if you do not have sufficient outstanding invoices to cover all/most of your working capital needs, or if you do not have an immediate or short-term use for funds (in which case, applying for a business line of credit that you can draw down as needed may be a better option).
To learn more about accounts receivable financing, contact the National Business Capital & Services team today by calling (877) 482-3008.
Or, apply today by filling out our 60-second online application start turning your invoices into cash in as little as 24 hours
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Megan Capobianco is the Marketing Manager at National Business Capital & Services. Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.