How to get started with accounts receivable financing

Are you a business owner that needs improved cash flow and therefore has decided accounts receivable factoring is the right route for your business? Now what? There are a few steps you should take when getting started with receivables financing. As a bonus, these steps can also help your business run more smoothly.

Take On Clients with Good Credit

When your invoices are due many days after the date of purchase, you are extending credit to your clients for that period. Because of this, you will need a system to properly vet your customers to be sure they are able and willing to pay on time. This can range from simple credit terms you have each client agree to as well as running a credit check on the business or customer. Not only will taking on clients with good credit help your business get paid, but it will also make A/R financing easier to secure should you choose to use it. Factoring agencies require the invoices to be paid too, hence they purchase those accounts that have a high likelihood of being paid in full. Showing you have already screened your clients for good credit is an important step when getting started with factoring.

Organize Your Invoices

The next step when preparing to use accounts receivable financing is to get all your invoices organized. You will want to gather all outstanding invoices, even those that are past due. Then organize them by the due date or even by the client. Having all of the invoices compiled in one place will give you a better picture of how your business is doing financially. It will also make it simple and quick to hand over your accounts receivable to a factoring company.

Find the Right Factoring Company

Now that you are organized, it is time to find a factoring company to finance your accounts receivable. You should consider the fee that a factoring company will charge. Most factoring agencies charge a percentage of the invoice, normally 2-4% of the total amount due on the receivables being financed. It is important to note you will not receive the 96-98% of the invoice immediately (the full total minus the fee). You will receive an advance of 70-80%, then a few weeks later after the factoring company collects as much of the outstanding amounts due from the customers, they will remit the remaining balance above the initial advance to reach the 96-98% of the total amount. Contact us to help you find the right accounts receivable factoring solution for your business. It might make the difference between having the cash flow to survive and thrive, or not having enough liquidity to make it through the dry periods when cash flow is insufficient to meet the needs of your business.