Selective Factoring Can Help Businesses Take Control of Their Cash Position

Accounts receivable financing models can be a dynamic funding resource for small and mid-sized businesses. There are many iterations of this financing model to choose from. Of the different ways that you can leverage receivables to access the capital that you need to support your day-to-day operations, selective factoring may be the best route. Here are some of the key qualities and advantages of this option that you should consider.

Choose Which Invoices You Use

In many traditional forms of factoring, businesses must relinquish their interest in all of their unpaid receivables. When a few customers with problematic payment histories are in the mix, financing companies may reduce the percentage that they are willing to advance you when they secure an interest in your customers’ debts. 

Having control over what you’re assigning and filtering out certain customers’ invoices from your financing agreement can help you get better terms. You may be able to access a higher percentage of invoices’ face value from an advance payment or credit line, and you may be able to pay lower processing or administrative fee in exchange for a factoring company’s services.

Stabilize Cash Flow

Waiting for customers to pay invoices can put a serious strain on your company’s operating budget. Doing work for customers or delivering products entails spending money. When you’ve put money into your general overhead and other operating costs but can’t access the proceeds of your labor, being able to afford the expenses that you’ll have to pay to generate new business could be tricky. Tapping into the value of your receivables prior to the receipt of customers’ payment could spare you a precarious cash position.

Protect Your Company’s Credit and Debt-to-Equity Ratio

Many companies make the mistake of overcharging lines of credit or taking out high-interest loans to fill the gaps until their customers pay them what they are owed. Unfortunately, these measures can have a deleterious effect on a company’s credit. 

Utilizing too much of your available credit lowers your score. Likewise, adding too much money onto your existing debt can weaken your company’s creditworthiness. These common credit issues that plague small businesses can impede access to funding opportunities and make it hard to win potential stakeholders’ confidence. 

Ultimately, accounts receivable financing is a great alternative to taking on high-interest obligations that can lower credit. With this funding option, you can steer clear of risky money management maneuvers that could put your credit in jeopardy or raise your debt-to-equity ratio.