Use Accounts Receivable Financing to Open a Second Location for Your Business
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Business owners often wish to expand and open up at a second location. Such an expansion is very heartening for business owners because they will be able to earn more revenue. Successfully opening a profitable second location is a validation of your business model. It is a milestone that you will definitely wish to pursue at some point while you are running your primary location.
However, opening up a second location is not an easy task. It places great financial srain on your resources and you may want to consider a finance arrangement that can help you in this regard.
Understanding Accounts Receivable Financing
Receivables include outstanding invoices and any other amount that your customers owe you. To reach an agreement for accounts receivable financing, you must coordinate with a lending firm that focuses on SMEs. The lending firm will extend an amount to the business owner which is equal to the unpaid receivables amount. The lending firm may advance up to 90 percent of the outstanding receivables amount and keep a factoring amount as compensation for its services. Such services are very useful if your customers are deep in debt or cannot pay due to any other reason.
Benefits
Business owners who wish to open at a second location can take advantage of accounts receivable financing. Business owners can gain easy access to cash and collateral without having to wait for a business loan. Such a financial arrangement also streamlines the financial preparation and paperwork that will be required to open the second location.
Business owners can solve their liquidity problems by gaining quick cash through leveraging accounts receivable. Such a loan can free business owners from worrying about financial matters. They can then focus more on the core business activities and expansion plans instead.
This finance arrangement is very helpful particularly if it is customary in your industry to receive payments after a delay of 30, 60, or 90 days. This means that a lot of cash is tied up with receivables for a considerable period of time.
Factors to Consider
You should first consider a number of factors before making use of accounts receivable financing. If your business is doing well but your receivables are paying late, this can lead to cash flow shortage that can hamper your plans to open up at a second location. In such a case, it is a good idea to resort to accounts receivable financing. This will allow you to expand your business and quell your financial issues at the same time.
The advantage of this loan type is that you cannot borrow more than what you are able to pay. Since the amount of the loan forwarded is equal to the outstanding receivables amount, such a financial agreement is very secure for both the lending firm and the business owner. The business owner enjoys peace of mind because they know that the loan will be paid back as soon as receivables pay.
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