Getting financing for a small business can be quite a task. Not only do you need to identify what you need the funds for and how you’ll apply them, but you then need to sift through the multitudes of various types of business financing to find the one that fits your needs. After that comes the task of applying for and getting the financing, which can be as much a task as identifying what you’re looking for. Now, if you’re looking for financing that will help you fill the gaps between invoice payments, something that’s flexible and will work for you, then you might be looking for accounts receivable financing. If that’s the case, read on to find out how to tackle the last issue – finding and getting that financing.
How to Get Your Funds
The first thing you need to do is find a financing company. Many of the third parties who participate in this type of financing will be listed online or in the phonebook, where they might be listed as factoring companies or factors. A lot of these companies tend to work with specific industries, so you can then narrow the field down by looking for your specific industry. After you’ve identified some potential companies, you’ll provide them with some basic information and they’ll look at your customers’ credit history, your invoice history, your own company’s tax history, and some other basic information.
After the third party has completed the initial due diligence phase, they’ll issue you contracts, which you’ll sign before selecting which invoices you want to sell. Keep in mind that that you’ll get more money per transaction by selling invoices to customers who have better credit since the fees for such invoices will be lower. After making this decision, the third party will send the client a Notice of Assignment, which tells them that their invoices are now being handled by another company and that they will pay that third party instead of you. Once the invoices are agreed upon, you get a portion of the agreed-upon sum at the outset, and the remainder, less the transaction fee, will be paid to you once the customer has paid the invoice to the third party.
The Takeaways
As with many types of business financing, accounts receivable financing requires you to do some work. But if you’ve considered what you need the money for, and have customers with good credit, this can be a great way for your company to increase cash flow.
