An Accounts Receivable Financing Starter Guide

An Accounts Receivable Financing Starter Guide

Financing your accounts can provide you with many resources for managing your company’s financial future. It can regulate cash flow to help you manage inconsistent customer payments when you have your own payment obligations to make. It can also provide you with the structure needed to reinvest for growth as you establish clear budgets and plan to maximize the productivity of your operating space. In some cases, accounts receivable financing can even provide you with the lump sum needed for major inventory purchases or emergency maintenance and repair costs to equipment. So how do you get started?

Application Requirements

Your invoices will be needed, of course. You only need to send the ones you plan to finance, but some programs do require you to finance your entire outstanding receivables list at once. You’ll also need to provide financial records to establish customer payment histories. You may need bank statements to corroborate your own ledger. Business information like your tax ID, license, and liability insurance policy confirmation are also common, but the exact information required is dependent on the financing firm. What is consistent is that your credit score is not the basis for this cash advance, because accounts receivable financing is based on money owed to you, so it’s the customer’s risk of default that defines the lender’s risk.

Approval & Customer Notification

If you are approved, it is common to have a phone conversation where some confirmation of the application records and additional information is required before closing the deal. This is not always the case, but factoring firms like to make it a stage so you can ask questions before signing final paperwork so they tend to include it even when there is no additional information needed. You will also get instructions for notifying your customers of a change in the payment instructions and the recipient’s address. They need to pay the financing firm directly, and if they pay you, you need to send the payment along for processing.

How Long Does the Process Take?

The entire application, approval, and cash distribution process tend to take between three and five days. It is on the faster side when you have an established relationship with a financing company and they know what to expect from your customers. If you have a formal arrangement for financing on a schedule, it might be even faster than three days sometimes. For first-time applications and those who take longer than a day to respond to requests for additional information, it may take slightly longer. That makes accounts receivable financing ideal when you need short-term working capital and you have invoices.