Making sure your customers pay for their orders by the set date is a challenge for businesses in almost every industry. If you are worried about having to charge high late fees and that these may keep customers from placing additional orders, you may not take that aggressive of a stance toward overdue payments. However, if you are like most businesses, having the money you are owed is necessary for growth.

This is a challenge that can be overcome with the help of accounts receivable funding. Also called factoring financing, this process lets you sell your outstanding receivables to a company for a lower price. The purchaser then assumes the risk of the unpaid invoices and gives you cash upfront.

While this may sound great, getting to know the pros and cons of accounts receivable financing can help you decide if it is something that will benefit your business.

Accounts Receivable Financing: The Pros

You may wonder why so many businesses use accounts receivable financing as a top funding solution. The first reason it’s so appealing is that you don’t have to offer any collateral. You also keep ownership of your invoices, customers, and business as a whole.

The spending limit you receive will align with business growth, too, which means you don’t have to worry about your business acquiring more debt.

Accounts receivable factoring is a smart choice if you need access to funds right away. You can get the working capital needed to ensure you can continue meeting the needs and expectations of your customers. Most lenders will also collect money directly from the invoices, which means there is no additional paperwork to deal with.

Accounts Receivable Financing: The Cons

While the benefits sound great, there are some potential downsides, too. Based on the lender you work with, the rate that you pay can be impacted by the clients’ history of making on-time payments. Also, based on the lender you use, the contract period may be longer than expected, with some factoring companies requiring a contract of two to three years, minimum. It’s important to make sure you understand the length of the contract and if shorter options are available.

Factoring for Your Business

Accounts receivable financing can be an effective way to quickly get capital for your business. However, understanding the pros and cons is necessary to reap the most benefits from this funding option. Contact Hemingway Financial Group today to start boosting your company’s cash flow with accounts receivable financing