Are you looking to expand your operations in a second location? Being able to do so is a milestone that depicts your ability to find the niche that works for you. But, opening a second location can be financially daunting. The good news is that you can use your accounts receivables to fund your expansion. Accounts receivable financing is available to help in easing your financial troubles. Being financially secure provides you more ability to succeed in opening a second branch.
How this Type of Financing Works
Your receivables are composed of the money you can collect from your clients or customers. If you enter an accounts receivable financing agreement, you will work with a factoring company that will provide you a certain amount that is equivalent to your unpaid receivables’ value. Often, the factoring company can provide you 80% of the total invoice amount. The factoring company will be the one chasing your clients for their invoices. The remaining percentage serves as reserves and will be paid when the clients pay the factored invoice.
How Accounts Receivable Financing can Benefit Your Business
This form of financing can provide you that much-needed cash for your expansion. It provides you funds without waiting for a business loan or other source of funds. Leveraging your accounts receivables usually lead to an instant cash flow that helps you through the expenses you will incur for your second location.
The Right Time to Use this Financing
Before you consider this kind of financing, make sure you consider some factors such as the following:
- Sufficient expansion funds. Make sure you don’t open a business purely because you can depend on this financing. The money that you can get from this financing should only serve as a supporting fund. Thus, you should have enough money to cover more than just the basics of the expansion.
- Established customer base. Before you use this financing, make sure your customer base is built. Factoring companies will want to work with you if you have tested products or services. Being able to show more growth increases your chances to get approved for this financing.
- A team that is prepared for the financing. You need a team you can trust in planning how to handle your finances. Make sure your people know how to work with your chosen factoring company and interact with clients. Also, this team should have a focus on how to make your expansion a success.