Accounts receivable financing is a type of financing that is friendly to small businesses. Unsurprisingly, it’s also becoming popular. Many modern companies rely on AR financing to help with everyday operations and use it to push financial growth, too. Do you need more convincing? Check out this helpful guide to learn more about AR financing, the process, and the reasons why business owners like it.

Is Accounts Receivable Financing a Loan?

In broad terms, AR financing is a type of alternative funding. This means that it’s offered by alternative lenders: private investors or factoring businesses instead of banks.

Some lenders offer accounts receivable funding programs that act as short-term loans. In this case, the value of your business’s unpaid invoices becomes collateral for a loan. You get funds immediately and make monthly payments like with any other loan.

Other lenders structure accounts receivable funding programs as a sale of assets. Instead of using your invoices as collateral, you sell them directly to the factoring business at a discount. In exchange, you get paid right away instead of having to wait months for clients to pay you.

Is Accounts Receivable Financing Positive or Negative for Small Businesses?

The answer to this question depends on two important factors: the reason you need financing and the lending partner you choose. When done right, AR financing can have a positive effect on business stability, operations, opportunities, and profits. When done wrong, it can carry higher interest rates that leave you struggling.

To avoid problems and maximize the benefits, you need to have the right objectives with your capital. AR financing should never be used as a band-aid for serious cash flow problems.

If your team is struggling to meet financial obligations because your company isn’t selling enough products, no amount of financing can solve the problem. On the other hand, AR financing can be a huge help with stabilizing cash flow, helping you get money from invoices immediately instead of waiting three or four months for customers to pay.

Is AR Financing Trustworthy?

Good lending partners make all the difference. They offer good terms that are flexible enough to adapt to your company’s needs. It’s often possible to customize financing details so the process is comfortable for small businesses. The idea should be to increase liquid capital and promote a long-term business relationship.

Contact Mai Capital today to learn more about accounts receivable financing.