How to Turn Your Receivables into Cash Fast

las-vegas-loan-e1429561864833-940x551As a business owner, it’s important to have a steady flow of cash coming in to be able to grow, operate and pay regular expenses. By selling your products or services to your growing customer base, you would think the cash would be readily available to use for the next office bill or to order more inventory. The problem is that customers tend to make payments and are slow to pay, and sometimes you have to spend time chasing down money. As an entrepreneur, this is a problem because you can’t afford to wait to pay your bills. What should you do to turn your receivables into cash fast? Here is a look at how to handle this.

What do I do when I don’t have the money from customers yet?

When you’re waiting for customers to pay, you need to have a loan to fill in the gap. Growing companies with business clients that haven’t paid for services upon delivery, it’s necessary tofinance the cash. You can choose from getting a line of credit, getting factory/accounts receivable financing, or getting an asset based loan. They all differ in how they work making them each have their own drawbacks and benefits. There is no right or wrong way to go.

Asset Based Loans

An asset based loan is going to basically work like a revolving loan in which the borrower can use as needed up to a certain amount. The maximum loan amount would be determined based on the company’s average 90-day receivables balance. Interest would be due only on funds drawn, not on the maximum loan amount.

It’s nice that they can be repaid anytime, that your credit score isn’t a factor in determining eligibility for the loan and interest rates are affordable. The downside is that there is a minimum drawn down amount, it takes 10-14 days to approve and fund, the maximum loan balance can’t exceed 80% of the company’s outstanding 90-day receivables balance and you can only draw if you have outstanding receivables.

Line of Credit

Line of credit is a common way to go be nice that they can be repaid any time, the maximum loan amount could be very high depending on your profits, there are no restrictions on when you draw or how to use the funds and the interest rate is the most affordable for short-term financing out there.

You just draw funds as needed up to a maximum amount determined by your historical business cash flow. The downside is that if sales are down, you may not be eligible next year and it can take 30-45 days to get approved and funded.

Finally, consider factoring (accounts receivables financing) if you’re looking for a cash advance on current outstanding invoices less than 90 days old because you can get funds with 5 business days and they can be repaid anytime.

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