Business & Marketing

An Entrepreneur’s Guide to AR Financing

Not having a large enough cash flow can lead to a quick death of a business for entrepreneurs. Thankfully, there are multiple ways to secure financing, including AR financing to keep your business operating smoothly. 

AR financing, also known as accounts receivable financing, allows you to receive external funding by using your unpaid accounts receivable invoices as collateral. The business of AR financing has grown by only 0.4% between 2015 and 2020 in the United States.

This doesn’t mean it’s impossible to receive funding. But it can be hard to find information on how AR financing works! Here’s how AR financing can help entrepreneurs.

What is AR Financing?

AR financing, or accounts receivable financing, is a funding option equal to outstanding invoices in exchange for a fee.

You can think of AR financing as a way to receive funds when invoices are due but haven’t yet been fulfilled. Of course, it would be optimal if invoices were paid when due. It would be more optimal if invoices could be paid immediately!

But some industries make this harder than others. What if your client gets paid by their boss on the first of every month, but you need financing on the 15th? This may force you to make invoices have a 30-day payment window.

However, if you are a smaller business or solo entrepreneur, you may need your invoice to be paid sooner. After all, bills must be paid in order for work to be completed on your end, too! This is a situation in which AR financing could help keep you afloat.

How Do I Qualify for AR Financing?

Sounds great! So how do you actually qualify for AR financing? Thankfully, AR financing is somewhat easier to “qualify” for when compared to other loan programs.

This is because AR financing doesn’t count as a typical loan. This is because your outstanding invoices are used as collateral for your cash injection. Financing companies will be more interested in your invoice quality, than in your personal credit when you seek AR financing.

Additionally, depending on the financing company you work with, you can choose to finance all or a portion of your outstanding invoices. It is best to search for financial institutions that are in your area to ensure that you can go to an in-person branch if necessary.

Some companies, such as, also offer ways to receive quotes from multiple financial institutions at once. Your Funding Tree is not a direct lender, but a marketplace that can be used as a resource to help match you to a lender that matches your needs. 

Accounts Receivable Funding as a Cash Flow Savior

When it comes to running a small business, it’s hard enough to find customers and get invoices filled. Add in the problem of needing to have a positive cash flow, and getting off the ground can seem impossible.

Applying for loans can also be stressful and expensive. However, receiving AR financing can help keep your cash flow green while also being more affordable with fixed or low-percentage rates.

Ready to learn how to further mitigate financial risk for your business? Read about business budgeting and essential documentation on our blog today.


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