Most businesses need at least a little financial assistance. Sometimes, all you need is some additional cash to help make ends meet without stretching your cash flow too thin. In such cases, a business loan may not be the ideal solution. Instead, perhaps you should consider accounts receivable financing.

Understanding A/R Financing

Accounts receivable financing provides you with a unique alternative to conventional business loans. Instead of applying for a lump sum of money, you sell your unpaid invoices for almost immediate cash to a company known as a factor. The factor typically advances you between 75% and 85% of the total value of those invoices. After your customers pay the factor, you receive the remainder of the value minus all applicable fees.

Pros of A/R Financing

There are several benefits to A/R financing, including:

You get fast access to cash. A conventional loan can take 30 or more days to fund. With A/R financing, you get funding within a few days. Some companies provide you with cash in as little as one business day.

You can use the funds for just about anything. The funds you receive from A/R financing boosts your cash flow. The great thing about it is that you can use it for just about any business-related need. It can help you to meet your monthly financial obligations without stretching your bottom line too thin. The additional cash flow also allows you to take advantage of unique business opportunities when they arise.

It’s not a loan. A/R financing isn’t a loan; it’s an advance. The factor provides you with the money your customers already owe you. Since it’s not a loan, you don’t accrue any additional debt.

Cons of A/R Financing

There are also a few downsides to A/R financing to keep in mind:

Your approval depends on your customers. Your approval for A/R financing doesn’t depend on your credit score, which can be great if your credit isn’t the best. Instead, approval depends on the creditworthiness of your customers. If they have less than perfect credit, you may not get approved (or you may have to pay higher fees).

A/R financing can be expensive. A/R financing can be more expensive than conventional business loans. Keep an eye on all fees applied to your financing so that you don’t encounter any surprises later on.

You may lose some control. While A/R financing doesn’t affect your ownership of your business, your factor may require that you drop certain customers if they don’t meet that factor’s requirements.

If you’re in need of financing, but a conventional loan isn’t the right solution, you may want to look into accounts receivable financing. Weigh your options carefully to find the best option for your needs.