Maintaining good cash flow is one of the key challenges for running a successful business. One option that many business owners fail to leverage is invoice factoring, also called accounts receivable financing. This can help you get money for your business when you have active invoices. Understanding how it works can help you make the most of it.

What Is AR Financing?

Financing your receivables means that a lender gives you money upfront from your invoices. Then, when the customer settles the balance, the lender gets paid. There are two ways that this can work. The lender could buy the invoice at a slight discount then collect the full amount from the customer. Alternatively, the lender could loan a portion of the balance that you pay back once the customer pays you.

This is one of the oldest forms of business finance and dates back to antiquity. It is a simple setup that can be very helpful for your cash flow.

How Does It Work?

As described above, the arrangement is fairly simple. When you start working with a factor, you can get paid almost immediately after sending invoices. The decision is made on your customers’ credit. So, you can get approved even if you have a less-than-ideal credit history or cash flow.

In many cases, you will have nothing to repay. You can use the money for any purpose because you have simply sold the invoice as an asset. The factor then collects the balance.

Depending on the company you work with, there may be recourse or no recourse. This means that you are responsible for the advanced amount if the customer doesn’t pay (in the case of the former) or you aren’t responsible (in the case of the latter).

Essentially, you just give up a small portion of each invoice to get paid sooner. It is fast and simple.

What Are the Benefits?

There are many great reasons to consider this option. These are some of the most noteworthy:

• You will get paid right after issuing an invoice rather than weeks or months later.
• You can use the money very flexibly. There are no restrictions.
• It is easy to qualify, even if you have imperfect credit.
• You can get help with collecting from customers.

Get Started Today

Learn more about invoice factoring today and decide if it is right for your business. This could be a great way to ensure your continued healthy cash flow.