According to a recent survey 95 percent of businesses will require additional capital over the next 12 months. Thanks to technology innovation and the growth of alternative finance solutions, access to non-bank capital is easier than ever. And because of competition, small and medium sized businesses (SMB’s) are able to get money for their businesses quickly and cost-effectively without the challenges of working with a traditional institution.
One particular area that’s seen a lot of interest is receivables financing or accelerated invoice payment. Here the supplier receives early payment of their invoices in exchange for a small fee. Many of these platforms are extremely easy to use and deliver quick payment. A supplier simply logs in to select from one to all invoices for early payment; funding can be as fast as same day. The ability to dictate how much and when money is received can be a game changer for SMBs.
Following are just some of the key benefits of receivables financing:
- Liquidity: Access to funding is a challenge; businesses can struggle to get a line of credit or a bank loan. Even if they are able to, the rates can be high and often the loan amount is insufficient to cover all working capital needs. Receivables financing can be a valuable part of financing strategy, as it is complimentary to most financing programs, offers lower rates than most offerings and importantly, funding can be deposited into the supplier’s account as quick as one day.
- Improve opportunity for more sales: Many customers are increasing the length of their payment terms which increases the SMB’s risk exposure to these customers, potentially limiting how much can be sold to them. At the same time, offering longer payment terms to customers may gain a competitive advantage. Accelerated payment removes the impact of longer payment terms, opening the door to increased sales.
- Non-debt working capital: One of the major advantages of receivables financing is that it’s not a loan. It’s not debt that will accrue interest and will require payment over months or even years. And no credit checks are required. Rather, it’s the supplier’s money, just paid earlier.
- End-of-quarter spending: Keeping spending on projection from quarter to quarter is important for any company. And if there’s a situation where a sizable capital outlay is required – like additional inventory or end-of-year employee bonuses – easy access to cash is of utmost importance. With receivables financing, businesses can easily address these critical cash outlays.
Easy access to working capital can be a key driver of success for an SMB looking to grow. There are plenty of options to leverage, just make sure it’s the right one for your business.