How To Set Up Accounts Receivable Lending
When working with more prominent companies, your business may not be paid for a month or two. Handling more significant business and government accounts will make a company wait by paying an invoice until the next month. This standard practice can leave you strapped for cash each month, but luckily, financing is available to help you improve your cash flow.
Accounts receivable financing helps keep money flowing by allowing you to finance these slow-paying clients. While you’re waiting on your clients to pay you for your product or service, using this type of financing keeps you running smoothly.
When you are set up for accounts receivable financing, the lenders want to ensure your creditworthiness is top-notch. The backer seeks to safeguard your cash flow is consistent and that your invoices will be paid on time every month.
Once they have a proposal in place with you, They will want to check several things to ensure your ability to pay back your debt. Checking your aging reports for your receivable accounts and ensuring that your company’s accounts do not currently have a lien will help keep your invoices paid on time as well as theirs.
Verifying your invoices is standard before the money lender will approve a wire transfer to your account. Double-checking for anything that might be off or out of the contract’s scope is necessary to avoid potential fraud. You can pay your vendors after you receive the wire from the lender.
Each month, your clients pay the payments they owe your company. When the payments come in, the checks go to an agreed-on location to be checked by the factoring lender against your invoices. The finance agency will cash the checks on your behalf.
After the checks are processed, the funds are used to settle the money owed to the lender. The money backer takes their fee from the funds from the payments made by your clients. Then they will refund any unused funds to your business.
This process continues each month until you terminate the accounts receivable financing contract. Ending an agreement with a factoring lender will require contacting the company to see what their process entails.
Using your accounts receivable as leverage to keep your monthly money flow consistent can help you pay the company’s monthly liabilities on time. That keeps your employees and vendors happy and allows you to focus on your customers less stressfully.