Accounts Receivable Financing, or AR Financing, is a financial option where a business sells its unpaid invoices to a finance company. This provides immediate cash, eliminating the delay in receiving client payments. Essentially, AR financing transforms outstanding invoices into instant capital, allowing businesses to sustain a consistent cash flow and pursue growth opportunities without being hindered by slow-paying customers
Both accounts receivable financing options, accounts receivable loan (AR loan), and accounts receivable factoring aim to provide immediate cash for businesses to boost liquidity. However, there are key distinctions between the two.
An accounts receivable loan, often used interchangeably with accounts receivable financing, is essentially a credit agreement where your business's unpaid invoices act as collateral. You retain control over your accounts receivable and are responsible for collecting payment from clients. The loan must be repaid according to agreed terms, regardless of whether your customers have paid their invoices.
On the contrary, accounts receivable factoring involves selling unpaid invoices to a factoring company at a discount. The factoring company takes charge of collecting payments directly from your clients. In this scenario, there's no debt to repay, as the transaction is treated as a sale, not a loan. This method is the more common type of accounts receivable financing.
How does accounts receivable financing operate? It follows a straightforward process:
You can go the bank route with a long application process and 75% rejection rate. Or, you can contact us and ask for a consultation.
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