How to Qualify for Accounts Receivable Financing

Accounts receivable financing is a valuable method of obtaining working capital for small businesses. This method works by using your unpaid invoices as collateral to request a loan. The lender assesses the amount and interest rate of the loan depending on the size and trustworthiness of your invoices.

A/R financing is much easier to qualify for than traditional bank loans. However, there are still some basic requirements you need to meet. Here are six essential parts of applying for this type of loan option:

The Right Type of Business Focus

First, accounts receivable financing is generally extended to companies that sell to other businesses or organizations. Unlike stores that market to end consumers, these B2B or B2G businesses typically offer credit to their customers and issue invoices that must be paid in 30 or 60 days. This is the kind of small business that lenders are looking for when it comes to A/R financing.

Minimum Quantity of Business Revenue

Requirements vary from lender to lender, but there is usually a minimum revenue or cash flow requirement. This is important because the amount of customers you have, your total sales, and the quality of your business leads directly affect how likely it is that the lender will get repaid.

Documents Validating Cash Flow

It’s not enough to arrive at your appointment with some company reports or a figure stating your total revenue. Instead, you need to take along several documents that show your business’s cash flow. For example, you may need bank statements, invoices, a voided business check, and copies of the business owner’s ID.

Customers With Excellent Credit

Your company’s credit rating doesn’t play a big role in getting approved for this type of financing. What matters is the value of your invoices. That’s why having customers with excellent credit matters. If your clients have a great credit score, it tells lenders that there’s a good chance they can get paid for the invoice.

At Lease Six Months in Business

With any loan, financing companies want to see that you know what you’re doing when it comes to running a business. Six months of records may be enough to demonstrate that you’re a great entrepreneur with stellar customers and a large base.

Steady Flow of Outstanding Invoices

Outstanding receivables are your main source of collateral for these loans. Accounts receivable financing partnerships generally make use of more than one invoice. You may rely on A/R financing regularly to take care of business emergencies, payroll, or inventory payments. Lenders need to see that it makes sense to invest in your business.


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