This post was originally published on On Deck
If you’ve got customers who pay on net 30, net 60, or longer, you already know the problem: your cash flow can get squeezed even when sales look strong. Your balance sheet may show plenty of accounts receivable, but you can’t pay bills, cover payroll, or buy inventory with “unpaid invoices.”
Receivables financing can be one way to turn outstanding invoices into working capital faster—without waiting for payment terms to run out. Here’s what it is, how it works, the tradeoffs, and what to consider before you sign up.
What is receivables financing?
Receivables financing (also called accounts receivable financing or AR financing) is a type of business financing that can offer access to cash based on your outstanding receivables. In plain English: a financing company or lender provides you with money now, using your accounts receivable as collateral.
Instead of waiting weeks (or months) for customers to pay, you use those unpaid invoices to unlock short-term funding. That can help you smooth cash flow, cover expenses, and keep your operations moving.
Receivables financing is often used by businesses that:
Sell business-to-buisness (B2B) and invoice customers (not paid at checkout). Have large outstanding invoices that take time to collect.
— Read the rest of this post, which was originally published on On Deck.
