You know you only sometimes have a steady income as a business owner. Other times, you face revenue gaps due to various outside factors. You need a fast-funding source to supply adequate working capital when you need to bring in more money to cover your day-to-day operations. Accounts receivable financing is a great way to gain access to the cash you need to stay operational even when revenue is down.
What Is Receivable Financing?
This asset-based borrowing uses your outstanding invoices to back your loan or line of credit. Several methods offer different pros and cons. With select receivables funding, you choose which invoices to use and get 100% of the value minus fees. Factoring involves selling your invoices to a factoring company. That agency then takes over control of your receivables. You get a portion of the total value immediately. You get the remaining amount minus fees when the client pays the balance.
Since this kind of lending uses your invoices as collateral, you typically do not need strong creditworthiness to qualify. The quality of your invoices and your client’s ability to pay on time determine your approval.
What Qualifications Do You Need?
One of the primary benefits of a receivables finance option is that it is easy to apply and qualify for funds. You do not need to have the requirements associated with traditional commercial loans. Your financial credentials are less crucial than the quality of your unpaid invoices.
You will need to satisfy some basic requirements to gain access to funds. Generally, financial institutions require that you have been operating your business for a minimum of six months. Lenders also need to see that you have quality invoices and creditworthy clients. They will also look at your annual business revenue and your customers’ repayment history to determine their associated risk and your eligibility.
How Do You Apply for Funding?
The application for accounts receivable financing is typically a straightforward process. Many lenders have online programs that streamline the procedure. Requirements vary depending on the method and the lender, but you will likely need to provide the following:
- Business bank statements
- Recent company tax returns
- Accounts receivable report
- Business License
It is vital to remain operational, even when revenue is down. Your customers rely on a consistent experience with your company, and you must still pay vendors, utilities, and employees. Gaining access to cash through receivable financing is an excellent way to manage your working capital and stay afloat during short-term financial hardships.