When it comes to financing your business, it can be challenging to determine which type of financing is right for your particular business in your particular situation. Accounts Receivable (A/R) financing allows you to borrow money against your existing invoices – this can be a great option, but how do you know if it’s right for you?
Here are six indicators that will help you determine if accounts receivable financing is the best option for you:
1. Inability to Obtain Traditional Lending – To be considered for a loan, lenders evaluate the kind of risks your company takes on in order to approve your loan. New businesses can have a hard time getting quality loan rates because the risk to the bank is higher, and the lack of collateral allowance often stands in the way of being approved. However, if you find your business turned down by traditional lenders, A/R financing could be an option.
2. Quick Growth – Quick growth doesn’t seem like bad news, but if it is an unanticipated surge in sales, you may find yourself struggling to catch your breath. This unexpected growth expansion can require extra supplies for manufacturing, more staff, and often more money to pay the bills. Unfortunately these frequently occur well before your company receives income from the growth. If this is the case, you may be a good candidate for an A/R loan.
3. Expanded Offerings – Introducing a new product line, service, or other new branch of your business can be very exciting, but it also comes with a unique set of challenges. There’s often a need to invest in new equipment, personnel, or other items necessary to get this part of your business up and running. In this scenario, A/R financing may be a good option.
4. Seasonal Sales – While many businesses experience relatively stable sales throughout the year, others can be very seasonal. High demand for seasonal merchandise or expected participation in upcoming events can cause sales to skyrocket, in which case, accounts receivable financing might suit you.
5. StrongCustomers - Lenders are more likely to offer accounts receivable financing to companies with paying customers whose credit is in good standing. While overdue accounts can be used as collateral, some lenders prefer to deal with customers that are less than 90 days late. Some lenders, including here at Crestmark, provide invoice collection efforts and client credit reviews as part of their services.
6. Net Payment Time - Accounts receivable financing might be right for your business if your invoices request payment within 30 or 60 days. You could be a good candidate if you only need a quick infusion of money before the payments are due to bridge the gap between accounts payable and accounts receivable.
If your business is currently experiencing any/all of the items listed above, AR financing may be a great option. For additional information, and to speak with a lending expert in regards to your particular business, give us a call at 888.999.8050.
Has your business run into any of these circumstances? Has accounts receivable financing worked for you?