There are a lot of financial products you could use to access working capital when you need it and you need it now. Most of them require you to take on some kind of debt that is shown on your credit report, though, and accounts receivable financing does not. That’s why some companies opt to use it as a way to get quick cash to handle surprise orders or expenses like breakdowns and repairs.
Cash Flow vs. Working Capital
Many people see AR financing as a cash flow management tool, and it is good for that, but it is not always needed. You have other options for cash flow management, and some companies have enough reserve capital to handle cash flow without any credit products. Using AR financing for working capital means foregoing it as a cash flow management tool, but for the right companies that is a perfect idea.
When you use invoice financing for working capital, you manage your receivables as usual, tapping into reserve cash or other credit products to bridge gaps if customers pay slowly enough to cause issues. When you have a sudden expense like a big supply order for a surprise new client or a rush order from an existing client, then you finance your invoices to get enough working capital to cover those needs. You’ll probably get more than you need, so that leftover capital becomes your cash flow budget until a new wave of invoices starts bringing in money.
Finance Your Receivables as Needed
The advantage of accounts receivable financing over something like a credit line for working capital is simple. You can refinance as needed once new invoices come in. Even if your customers from the last wave of invoice financing are still paying down their bills, you can enter into a new agreement to get a cash advance against the new invoices. That makes it a very powerful tool for any need that involves fast capital commitments.
AR financing is a flexible resource that can fill a lot of roles in your financial toolkit. In the end, it’s up to you to decide what it’s best at doing for your business, and that decision might be one that changes as your company evolves. Gaining a firm understanding of its ins and outs while building a strong relationship with a single service provider goes a long way toward optimizing the costs and approval times for your cash advance requests, so get started today.