In the first years of running a small business, controlling the flow of cash, capital, inventory, and resources is critical to staying in the black. One option for small businesses is to pursue accounts receivable financing, a method of selling outstanding invoices to another company that has the resources to focus on the invoices.
How do you know when to open your business to this kind of financing? Well, it all depends on whether the benefits of doing so meet your needs.
- Keep Control of Your Company
Small businesses gain a boost from pursuing sources of funding or investment in addition to their regular business. Some types of investments require a business owner to give up partial ownership in the company. As time goes on, this method of funding may not be desirable to someone wishing to retain control of his or her company.
- Keep Focus on Incoming Contracts
With the sale of an outstanding invoice to an external company, the business may continue to pursue new contracts and relationships. Time has already been spent on pursuing those contracts that now take the form of the accounts receivable, and continuing to invest there once the contract has been established is a less than efficient use of a business’s time. Pursuing payment for too long could eventually cost a business the total worth of the contract, therefore nullifying all the work put into winning it in the first place.
- Keep Collateral Out of the Business
Traditional loans often require a business or an owner to put an important item down as collateral against the business loan. This begins to tie the life of the owner to the business in ways that can grow to be unhealthy. When making business decisions, owners need to be able to rely on their home and car being there at the end of the work day. If parts of the business are collateral, the resources that went into acquiring the property or inventory may be lost, which further threaten the business’s ability to recover.
- Keep Resources in the Core Business
Your business likely wasn’t created with the intention of dedicating time and people to pursuing payment after services have been rendered. If you leave that work up to those focused on the task, your core business may benefit from the resources, the focus, and the intentionality of making your business the very best at what it does.
With the help of accounts receivable financing, you can focus on what will make you a leader in your industry. Leave the payment chasing to someone else so you can start chasing your dreams.