A business cash advance is a popular financing option for many small business owners. However, before applying for a business cash advance financing, see to it that you understand how it works and how you can use it to save your business.
How Business Cash Advance Financing Works
There is another name for business cash advance financing – accounts receivables factoring. Based on this term, it’s easy to see that financing can be obtained by submitting accounts receivables invoices to a factoring lender.
Accounts receivables are sales made to customers that are awaiting payment. Merchants often extend 30-day credit to their customers to give them time to pay back their purchases. However, if you have a limited budget, you may need to obtain cash during the thirty-day waiting period. This is where business cash advance or accounts receivables factoring can help you.
When you submit your receivables invoices, your lender would immediately release your cash advance. Most lending companies offer 80% cash advance from the amount of invoices surrendered. Upon approval, your lending company will take over the collection of payments from your customers.
When your customers finished submitting their payments to your factoring lender, the business owner can receive the remaining 20% from the amount of invoices. Typically, customers are given 30 to 60 days to submit their payments. If your customer fails to pay back their debts on time, the business owner will get penalized.
Aside from accounts receivables, a merchant can also use credit card sales through credit card receivables factoring. If you accept credit card payments online, this is a good financing option for you. Both accounts receivables and credit card factoring can be obtained by businesses that have been in existence for at least two years. For new business owners, they will have to seek other alternatives to meet their short term financing needs.
How to Manage a Business Cash Advance
If you haven’t tried a business cash advance loan, it is recommended to explore your options carefully and do your own research. Take note that not all lending companies that offer accounts receivables factoring or credit card factoring services are legitimate. It is your duty to fin one a lender that not only offers a great deal but one that can be trusted as well.
For new business owners, it is also a good idea to seek professional advice from a business accountant or a business attorney. Get to know practical tips on how you can use your sales invoices and credit card transactions to free up your resources.
About the Author:
Melanie James has spent the last 14 years working with businesses to implement quick, effective and inexpensive changes to their businesses to increase productivity and their bottom line.