As a business owner, you need to have access to capital in order to keep your business running. One type of financing that can be beneficial is accounts receivable financing. Accounts receivable financing allows a business owner to use the money they are owed by customers as collateral for a loan. In this blog post, we’ll look at what accounts receivable financing is, the types of accounts receivable financing available, and whether or not it is right for your business.

What Is Accounts Receivable Financing?

Accounts receivable financing (also known as invoice factoring) is a way for businesses to obtain capital from the money their customers owe them. The lender will purchase the outstanding invoices from the business (the amount which their customers owe them), for a discounted rate, and give the business an advance on those invoices. This gives the business access to much-needed cash flow without having to wait for their customers to pay them.

Types of Accounts Receivable Financing

There are two main types of accounts receivable financing: recourse and non-recourse. With recourse financing, if the customer does not pay back the invoice, then it falls on the shoulders of the borrower (the business owner). With non-recourse financing, however, if the customer does not pay back the invoice then it falls on the shoulders of the lender (not on you). This means that with non-recourse financed invoices you don’t have to worry about losing out on any money if your customer doesn’t pay.

Is Accounts Receivable Financing Right For Me?

Accounts receivable financing can be a great choice for businesses that need access to quick cash but don’t have much in terms of collateral or credit history. It is also a great option for businesses that need to bridge gaps in cash flow due to slow paying customers or seasonal fluctuations in sales. However, it’s important to note that this kind of funding does come with fees and interest rates which should be taken into account when deciding if this option is right for you or not. 

How Is Accounts Receivable Better Than Merchant Cash Advances?

There are many similarities between merchant cash advances and accounts receivables but there are also some key differences too. One key difference between merchant cash advances and accounts receivables is that merchant cash advances usually require more paperwork than accounts receivables do which can make them more difficult or time consuming to qualify for depending on your situation. Another big difference between these two options is that merchant cash advances come with higher interest rates than accounts receivables do so they may not be worth it if you’re looking for cheaper options when getting funded quickly. 

Accounts receivables can be a great way for businesses who need quick cash flow but don’t have much in terms of collateral or credit history at their disposal; especially since they typically require less paperwork than other forms of funding such as merchant cash advances and come with lower interest rates too! That being said it’s still important to consider all your options before making any decisions when it comes to finances as what works best really depends on your individual situation and needs as a business owner. Overall though, understanding how accounts receivables work can help you make an informed decision about what type of funding might work best for you!