If your small business is facing a cash crunch, you may be wondering what you can do to tide your company over until business picks back up. Maintaining consistent cash flow is foundational to keeping your daily operations running smoothly, from covering payroll to fulfilling new orders to expanding your marketing efforts. When you’re stuck in a slow season or customers are taking a while to pay outstanding invoices, however, it can be difficult to keep enough cash on hand. If this is the case, you may be interested to learn more about factoring, also sometimes called accounts receivable or AR financing. This solution allows you to sell outstanding invoices in exchange for a partial advance on the total value, giving you cash when you need it most. Here are a few essential facts to know if you’re considering this financing option.

1. It’s Easier To Qualify For Than Bank Loans

If you’re a fairly new business or don’t have many employees, securing a traditional bank loan could prove difficult, especially if you have less-than-ideal credit history. While bank loans can take weeks or even months to get approved for and qualifying in the first place is out of reach for many businesses, AR financing usually allows you to access cash within days or even weeks. As long as your customers have good credit, your company’s credit score won’t make a big difference in whether you get approved for an advance.

2. You Could Get Up To 90% in Advance

When you work with a factor, a portion of the invoice is advanced to you prior to the customer paying the bill. While this amount depends on the value of the invoices, your customers’ creditworthiness and possibly the number of invoices you’re selling, in some cases, it could be as much as 90% of the total amount.

3. You Won’t Have To Put Up Collateral

Finally, since AR financing is technically a transaction instead of a loan, it usually won’t require you to put up collateral. If you’re hesitant to offer your assets as collateral, this could be a safer route than other loans that may require you to do so.

Having enough cash on hand is foundational to keeping any small business running smoothly, but when customers are slow to pay their invoices, you could find yourself facing a cash flow problem. Luckily, factoring can help you get the money you need without having to take out loans or worry about affecting your credit score. If you’re having a tough time waiting for invoice payments, consider whether factoring could be the right solution for your company.