May 29, 2011. Paul Hixon
Getting a loan is difficult for anyone with either bad credit or very little credit. For entrepreneurs and small business owners it can be especially frustrating to be in this situation.
Acquiring the capital needed to maintain an adequate level of cash flow can be hard for many start up businesses. Having little credit or bad credit can make this struggle even worse.
Phoenix small business investing specialists suggest accounts receivable financing to certain clients who cannot obtain a traditional loan because of their bad credit or lack of credit. For some small business owners it is a good way to attain funds until they are back on their feet or until they can qualify for a better loan.
Arizona business financing experts state that accounts receivable financing, also referred to as factoring, is when a business sells its open invoices at a discount to a financial company known as a factor. Different third-party factors will have different liability expectations, interest rates, and terms of service, so it is important to find a company that will work best for you.
Many factors will take on the full liability of the invoice once they purchase it from you–meaning that if they cannot get the money from the open invoice you will not owe them any money. Phoenix small business investing experts state that this is preferable but can be hard to find. Plus, factors who perform in this way typically only buy open invoices for companies or individuals with a good credit history. This however is one of the perks of factoring. Your personal or business credit does not come into question, the factor generally only focuses on the credit worthiness of the individuals whose open invoices you are selling.
The invoices are always sold at a discount because of the risk of non-payment. Factors take this in to account when determining how much they are willing to pay for an invoice. Phoenix small business investing experts also point out that some factors will charge a service fee and/or some type of interest based on the length of time it takes for them to receive payment.
Accounts receivable financing works best for companies that have many invoices from clients or customers who have not paid. It is a great way to obtain cash quickly, but it is important to choose invoices that will allow you to make either a small profit or to at least break even.
Updated May 29, 2011. Published January 11, 2011. Paul Hixon
