Using invoice billing is a great way to give your customers convenience and a straightforward rundown of the work done, but it can make your cash flow unpredictable. Practically every business that uses invoicing winds up needing to put in place cash management tools and protocols to even out the flow of things. Otherwise, it can leave the business unable to start orders until old work is paid for. Accounts receivable financing is uniquely suited to work as a solution to this issue because it provides you with an advance against your receivables as well as a few other perks.
Getting a Pay Cycle Set Up
Each round of receivables financing is treated as a fresh application for financing by the lender, but it is also true that once you build a relationship with one AR financing provider, they tend to approve you quickly based on past performance. That means you need to decide how often to send your invoices so you can get cash into your business.
You should apply a week or so before you plan to need the capital even when you are confident of approval, just in case something slows down the process. You never know when an outside factor could simply pose challenges for the workflow, even when you’re sure you will get your accounts receivable financing. Since the beginning of the pandemic, every office has had the occasional slowdowns after all.
Adjust Your Quotes Accordingly
The cost of capital for this kind of advance is pretty low when your customers pay on time. You get the advance up front, usually between 70 and 85% of the face value. Then when the customer pays the lender, they deduct the advance and fees before passing on the rest.
Once you get a sense of that cost for your business, it’s easy to fold it into quotes and preserve your bottom line. You can even start quoting higher if customers are known to pay late enough it costs you in penalty fees.
Other Uses for Accounts Receivable Financing
Cash flow management is one of the most popular uses for this form of cash advance, but it can also be used as an occasional way to raise working capital for big projects or windfall opportunities as well. If your cash management situation does not currently call for any help, consider what you could do by funding equipment or stocking up on inventory with the cash from AR financing. With the right planning, you can use it to prepare for your high-demand periods.