2 Big Ways to Monetize Receivables for Working Capital
Finding working capital is a challenge for all new business owners. For some, the goal is to retain enough revenue for growth and completing internal projects, only to have the majority eaten up by overhead and paying vendors. For others, the problem may be having a healthy sales record, but the rate at which payments come in from customers is less than ideal, placing a strain on cash flow and operations. Fortunately, there are two methods which allow businesses to monetize receivables in order to get working capital.
Monetize Receivables with Asset-Based Lines of Credit
Asset-based lines of credit structure financing around the value of a company’s real estate, equipment, and receivables. This is a revolving line of credit which can be drawn upon as needed. Unlike a traditional loan, using asset-based lines of credit to monetize receivables does not place any debt on the balance sheets. This line of credit gives businesses an extra resource for working capital for everything from purchasing supplies and equipment, to hiring additional staff, to rolling out new products and services. Additionally, business can monetize receivables by refinancing their asset-based lines of credit as they grow, because the spending limit on the line of credit increases proportionally with the value of the receivables.
Using Factoring to Monetize Receivables
When sales are great, but payments are coming in at a slow trickle, many businesses feel the need to take out a bank loan for a lump sum of working capital to keep operations afloat. Loans come with debt, payment schedules, and usually require a detailed credit check for approval – and many of those things are not desirable by small business owners. Factoring is an alternative to traditional loans which allows businesses to monetize receivables by exchanging their open invoices for cash. There are no credit checks run on the business, no payment schedules, and (above all else) no debt. When businesses monetize receivables with factoring, they sell their unpaid customer invoices to a commercial finance company. As per the standard factoring agreement, the finance company converts those invoices to working capital, usually within 24 hours. This gives businesses the ability to catch up on accounting and close out open customer accounts, and accumulate working capital, take the strain off cash flow and refocus on growth, rather than keeping the business afloat.
If you would like to learn learn more about financing solutions that can monetize your receivables for working capital, or if you would like to explore other financing options, call Bayard Business Capital and Consulting at 573-795-6390.