Using Accounts Receivable Financing to Grow Your Business

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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Are unpaid invoices causing cash flow problems in your business? You can use accounts receivable financing to get over the hump, expand your company and potentially boost revenues. 

Read on to learn more about how it works and alternative funding options to secure the capital you need for your business. 

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Can You Borrow Against Your Accounts Receivable?

Yes, you can borrow against your receivables through a method referred to as accounts receivable financing. 

How Does Accounts Receivable Financing Work?

Accounts receivable financing gives you capital for your outstanding invoices before they are paid to keep operations running smoothly. When the customer pays the invoice off, you’ll receive the remainder of what you’re owed minus factoring fees.

To illustrate, assume your company has $15,000 in receivables. You get approved for accounts receivable financing, and the lender agrees to fund 75% of the invoice. In this case, you’ll receive $11,250 now to use in your business and the remaining $3,750 (minus the factoring fees) when the invoice is paid in full. 

Is Accounts Receivable Financing Right for Your Business?

Accounts receivable financing could be a good fit for your business if: 

  • You’re experiencing short-term cash flow issues that you could quickly resolve if customers made timely invoice payments. 
  • Your reserves are running low, and you need to pay your employees. 
  • You want to hire short-term help to help meet increased seasonal demand. 
  • You need to pay a supplier soon or want to capitalize on a bulk discount they’re offering. 
  • You want to grow your company but don’t have the funds or will have to deplete your reserves to do so. 
  • You’re dealing with a temporary downturn in business due to decreased demand and need cash to keep your operations afloat. 

Common Types of Accounts Receivable Financing

Here’s a closer look at three popular types of accounts receivable financing:

Asset-based Lending (ABL)

Asset-based lending includes loans and lines of credit that are secured by inventory, equipment or some other property owned by the borrower.  This type of funding has steep fees, and business owners have a limited say in which receivables are funded. 

Traditional Factoring

The company agrees to receive a percentage of receivables and pay processing fees in exchange for early payment. It’s a far more flexible option than ABL since you can select which receivables to trade for immediate payment, but the fees are generally higher. Unlike accounts receivable financing, the responsibility for collecting the receivables falls on the factoring company. 

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Selective Receivables Finance

You also can choose which receivables are advanced for early payment with this method, and you may be eligible to receive the entire amount owed. Plus, the interest rates are often lower than you’ll find with ABL and traditional factoring. 

How to Grow Your Business Using Accounts Receivable Financing

There are several ways you can use accounts receivable financing to grow your business:  

Get Fast Access to Funding and Take Advantage of New Opportunities

You could get approved for accounts receivable financing and receive the cash you need in as little as 24 hours with select lenders. 

Outpace Your Competition

This form of financing caters to small business owners, entrepreneurs, sole proprietors, and independent contractors

Manage Cash Flow Gaps and Solve Challenges on the Spot

Instead of stressing about how to close cash flow gaps, you can trade in your invoices for cash and resolve money issues promptly. 

Sell One or Several Invoices

You have the option to sell just one or as many invoices as you’d like to meet your cash flow needs.  

Keep Your Equity and Avoid Debt

Selling off a portion of your company to get cash isn’t necessary, and you’ll avoid taking on additional debt. 

Where to Get the Best Small Business Financing to Grow Your Business

Small business financing is readily available through banks and credit unions. Online lenders, like National Business Capital, are also an option, as they leverage innovative technology to provide a convenient and seamless lending experience.

You can also find many financial solutions, including small business loans, merchant cash advances, business lines of credit, Small Business Administration (SBA) loans, equipment financing, asset-based lending, accounts receivable financing, and more. There are also tailored solutions for healthcare professionals, startups, and small business owners seeking franchise financing

Visit the website to learn more about funding opportunities or submit a simple online application to get started. If there’s a potential match, you’ll receive assistance from a dedicated business financing advisor to match you with the right funding solution for your company. It only takes a few minutes and won’t impact your credit score.

National Business Capital

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