How To Use Accounts Receivable Financing To Expand Your Business
Opening a second business location can be an excellent way to boost profits for your company. It allows you to reach more customers and increase your sales. Taking this step is a fantastic milestone for many businesses. To turn this dream into reality, you need liquid capital. That’s where accounts receivable financing can help.
Why Is Accounts Receivable Financing a Good Fit for Business Expansion?
There are many costs associated with the first steps of opening a second location. You may need to purchase commercial real estate or rent a building. You probably need to buy equipment, computer systems, and furniture. Also, investing in marketing to build a strong customer base at the new location is vital. All of this means spending capital.
Accounts receivable financing can be a great option because it reduces your need for loans. In this type of financing, you get capital immediately for the value of unpaid invoices. A trustworthy lender, called a factor, gives you anywhere from 70%-90% of the invoice’s value right away. You receive the rest once your customers make a payment on the invoice.
Since you already have one business location with lots of customers, you have an excellent source of invoices to use for factoring. You decide which ones you want to “sell” to the factor. This gives your business a strong infusion of capital, and you can use it for anything you need to get the new location running strong.
What Are the Advantages of A/R Financing for Expansion?
One reason A/R financing is so attractive for new locations is that it provides capital quickly. Traditional term loans, while excellent for large real estate purchases, take quite a while for approval. You may have to wait weeks or months to find out if you qualify. With A/R financing, you often receive liquid capital in 24-48 hours. That way you can take care of payroll or rent payments, even if the sales from your new location are still a little slow.
Also, A/R financing provides flexibility. You can use the capital however you see fit. This is more flexible than bank financing, which usually only lets you use the money for one specific use. Whether you want to buy a POS terminal or hire more workers, you can do it.
Finally, A/R financing reduces your debts, takes care of your credit history and makes it easier to qualify for other loans. Using your invoices for financing isn’t considered a debt. You owe nothing. When used wisely, and alongside other great types of financing, A/R financing can be amazing for expansion.