You've got a great business concept, you're doing everything right, but for some reason your profits haven't increased as quickly as you had hoped. What gives? If this is happening to you, it's possible that your company's working capital could be limiting your growth. In this article we'll cover the basics of accounts receivable financing and discuss how small businesses can take advantage of this financing option to boost their profits while reducing costs.
Accounts receivable financing is a type of factoring that allows businesses to borrow money against the future value of their accounts receivables. Accounts receivable financing can be useful for small businesses when they need capital now, but it comes with some drawbacks and should only be used in certain situations.
Before you apply for an accounts receivable loan, make sure your business is in a strong financial position. Make sure it is profitable, and do not take on more debt than you can handle. Your business should also have a good credit rating.
If your company has these qualities, it will be easier for you to get approved for an accounts receivable financing plan.
This section will teach you how to manage your working capital efficiently. Working capital is the money you have available to pay bills and make investments in the business, which can be done even if you don't have enough cash in the bank.
· Reduce Your Accounts Receivable
Accounts receivable refers to all of your customers' unpaid invoices. You need a certain amount of accounts receivable to operate your business, but it's important not to let them get too high so that they become an impediment for growth and profit potential. The best way to manage these payments is by ensuring that everyone pays their bills on time. In fact, one way businesses use A/R financing is by offering incentives for early payment or discounts for early payment (e.g., two days before due date). This encourages clients to pay their debts as quickly as possible rather than waiting until closer towards deadline when interest rates are higher
Control your cash flow cycle by using a cash flow management software. With this you can:
· Create and manage a full set of accounts receivable invoices for your business, including automatic emailing and SMS text reminders, line-by-line payment histories, and more.
· Use an integrated check writer to process checks on site or in the cloud.
· Access real-time reports that show how much money is coming in each day so you can see how many days it will take before you get paid. This gives you control over when customers pay their bills—and how much they owe before they do so (versus waiting until after the fact).
Accounts receivable financing allows you to decrease your cost of doing business by increasing revenue, reducing costs and increasing profit margins. Here are some ways to decrease your cost of doing business:
· Outsource some operations. For example, outsourcing customer service calls or other functions can free up employees to perform more value-add work within the company while saving money on labor costs.
· Use technology that reduces overhead costs. If a new piece of software or technology will help increase productivity and efficiency while decreasing expenses, it's worth exploring whether that tool is right for your organization.
· Change business models entirely if needed; this could include selling more services instead of products if possible—or vice versa!
· Reduce inventory by getting rid of old stock that may be taking up too much space in storage units or warehouses; this will also save money on storage fees as well as eliminate any potential loss from outdated or damaged inventory lying around somewhere in limbo waiting for someone else who might buy them (but probably won't).
This is the final step in your journey of mastering accounts receivable financing. You now know the basic principles of how this type of financing works, and how to apply them to your business. It’s important that you understand the different types of financing available so that you can choose which one would work best for your company. This knowledge will allow you to make better decisions when it comes time for applying for an account receivable loan or line of credit with a financial institution or lender.