If you have never heard of accounts receivable financing but your business runs on an invoice billing model, it’s time to start looking into this unique asset-based cash advance. Not only does it streamline the costs of capital while avoiding extra debt on your credit report, but it’s also the one tool that can truly normalize your income, giving you predictable paydays no matter when your customers actually send a check. On top of all that value, it outsources most of the work involved in tracking and collecting your receivables. Some companies even save enough on labor to offset the financing charge.

Predictable, Quotable Costs

The first couple of times you finance your accounts, you should expect to pay a little more than you will in time. This is because you and your clients are still an unknown quantity. Once the financing company understands the actual risks of nonpayment and you groom your client list to close out the accounts of deadbeats, it’s pretty easy to predict what accounts receivable financing will cost. Of course, if a customer is unexpectedly late, you might wind up with an extra fee.

Late Fees and Backend Payments

Most of the time, AR financing companies balance the risk of a late payment or default with well-defined penalties. They escalate according to the number of late payments and how late they are, but they are not typically costs you have to pay directly. When you get an advance against invoice payments, you typically receive most but not all of the value available after financing costs. The additional money comes to you after repayment if there are no penalties assessed. Otherwise, it absorbs the additional costs.

Approval and Customer Communication

Your application for accounts receivable financing typically involves the invoices and proof of payment, plus other basic business information. After approval, you will have to communicate to customers the new payment address and recipient information. Make sure you confirm this is not about the status of their accounts, just about streamlining your own receivables process. This keeps them from misinterpreting the situation, which could lead to hard feelings.

Finance on a Schedule for Predictable Cash Flow

Once you have a handle on the financing process, the final step to normalizing your cash flow is setting a schedule for invoice submission. If you work with your factor to understand their optimum age window for invoices, it’s as simple as submitting them every time you have invoices nearing the top end of that window. This keeps your costs down by ensuring you only finance fresh debt, the least expensive kind to take an advance against. That’s all you need to know to get your cash flowing in a pattern that works for your overhead commitments.