Is your business low on working capital? Are you starting to think that your clients will never complete their payments? Do you have a long list of bills that needs to be paid by the end of the month? If you answered “yes” to any of these questions, consider engaging in accounts receivable financing, also known as factoring.

What Is Factoring?

Factoring is an alternative financing method that centers on your accounts receivable, or the invoices that customers have yet to pay. You work with a third-party business, called a factor, which buys your accounts receivable and gives you an advance on them. Depending on your factor and your customers’ creditworthiness, you receive 70 to 90 percent of your invoices’ value, which you can use to handle your bills and supply costs. As your customers complete their payments, their money goes to the factor, which subtracts a fee and gives you the rest.

How Does the Process Start?

To begin the factoring process, identify your financial need. You don’t want to sell more invoices than are necessary to cover this month’s expenses. Then, choose the invoices that you want to sell. These should be from clients with good credit scores who are likely to repay their invoices on time. Next, reach out to various factoring companies and see what their approval process looks like. After you’ve found one that meets your needs, send them your proposed invoices and wait for approval.

What Are the Benefits?

There are many benefits to accounts receivable financing. The most important is that this financing method allows you to survive tough economic situations. Small businesses experience financial hardship all the time, but they’re not equipped to handle it like major corporations are. Most banks won’t consider you for a loan when your cash flow is negative or your sales are down, but factors don’t mind.

Additionally, although the process is not a form of debt, it does improve your credit score if you work with the same factor for a long time. When you review potential factors, make sure they include credit-reporting options in their accounts receivable plans. Building up credit in this way makes it much easier to apply for a loan when you want to expand your business or offer new products.

To help your business survive this period of financial distress, identify potential invoices and factors to get you through accounts receivable financing today.