Choosing the Right Accounts Receivable Financing Firm

Owning a business involves enduring the frustration as you wait for your clients or customers to pay for your products or services. Seasonable businesses, businesses with long payment cycles and those with unstable cash flow can relate to this. Not all clients pay on time. With accounts receivable financing, businesses do not need to stall their operations as they wait for client payments to get through.  Invoices can be converted into a working capital with the help of financing firm that specializes in accounts receivable financing.

What is Accounts Receivable Financing?

This form of financing refers to the sale of your accounts receivable to another organization. This frees up the cash held by your debtors. This procedure is meant to help you raise working capital, meet your payroll and have money available for your business expenses. With this financing option, you can have liquid cash from their unsettled invoices. Your client’s cashflow can be restored through accounts receivable financing.

Choosing the Right Financing Firm

Receivables financing providers are not created equal and choosing the right ensures that you get your much-needed cash and maintain the good relationship you have with your clients. When choosing a financing company, consider the following:

  • Upfront Amount the Firm Offers. The amount the financing firm will pay your upfront is a percentage of the amount in your invoice. Usually, they offer 70% to 9% of your invoice amount. Upfront offers that don’t come close to these amounts are not acceptable.
  • How Transparent the Firm. A great accounts receivable financing firm will be transparent in the way they do their business. Ensure they won’t charge you with some hidden costs and you can easily determine any all-inclusive fees.

  • How they Value Confidentiality. A number of financing firms will inform your debtors when you sell the invoices. However, you can choose discretion here. And you need to find a firm which values this. Therefore, work with a firm that is willing to keep the transaction from being divulged to your clients.
  • Honesty in terms of the contract. Just like other forms contracts, your contract with the financing firm must be well-understood first before you sign in. This can help you avoid getting trapped with long-term contracts. You can consult with your attorney to make sure that you are getting it right.

Accounts receivable financing has its benefits. But, working with a financing firm can be hard. Some of these companies may leave you paying hidden penalties and unfavorable monthly minimums or agreeing to unclear terms.