Accounts Receivable Financing: How it Can Help SMEs
Small businesses have both advantages and disadvantages based on their size. Their early stages and aptitude for resilience enable them to be agile. They are able to anticipate change quickly and respond rather than react. This is helpful in taking on more opportunities and building trust amongst customers. On the other hand, some of the disadvantages small businesses face are typically due to insufficient working capital. Without working capital, taking on opportunity can become quick difficult or near impossible.
In a long term growth strategy, it is likely a small business with set certain goals and ultimately will see more cash coming in than going out. But, in the short term, cash flow can be unpredictable. Your business may experience seasonal spikes in demand and in some cases cash flow can slow down or even diminish.
Uncomfortable they may be, these growing pains serve almost like a rite of passage for small businesses and fortunately there are solutions and resources available to alleviate some of the notorious pain points caused by insufficient cash flow. One example is accounts receivable financing. Accounts receivable financing is a common tool that small businesses make use out of to help bridge the cash flow gap.
Here are three ways accounts receivable financing helps small businesses:
Flexibility
With accounts receivable financing, a business will sell their outstanding invoices to a company that offers invoice factoring services like TradeRiver. Advance rates range from 70 - 90% of invoiced amount, allowing clients to operate, make purchases and fill orders in their supply chain with trade credit terms of 30-120 days. This gives clients the flexibility and peace of mind they need to grow.
Access
Opportunities can come out of nowhere and surprise us. If you are a small business that is experiencing dissipating cash flow, you won’t be able to respond how you would like to all of the time. In fact, the 2019 QuickBooks Online State of Small Business Cash Flow survey revealed that more than half (52%) of U.S. small business owner's companies have lost $10,000 or more by foregoing a project due to issues created by insufficient cash flow.
Accounts receivable financing provides quick access to working capital enabling small businesses to seize all of the opportunities that come their way. With TradeRiver, invoices are paid within 3 days of assignment allowing client to operate and grow.
3. Streamline
Customer behavior is always shifting and so is the demand forecast. For some small businesses, there are peak seasons of demand which introduces an overflow of cash immediately followed by an abrupt slowdown or stall in cash. Accounts receivable financing helps to smooth the transition for small businesses in and out of periods of high demand. Management of accounts receivable financing helps to ensure consistency and stability amid seasonal variations and other variables.
For a small business navigating cash flow, it can be a bumpy ride at the beginning. But the good news is there is opportunity in invoices. Small businesses can unlock additional cash flow without putting up extra security or taking on debt. Small businesses can seize all growth opportunities with the aid of accounts receivable financing.
Learn how you can unlock additional cash flow here.