Cash flow issues can be a major headache for small business owners. When you already have a fair amount of outstanding debt, you probably want to avoid taking on much more. Fixing a short-term problem with a high-interest line of credit or business loan might be a quick fix for a short-term cash crunch, but it may not serve your interests well in the long run. Utilizing accounts receivable financing can help you attain a fast infusion of working capital while mitigating your financial risk exposure.

Circumnavigate Financing Barriers 

If your company does not have excellent business credit or high-value fixed assets, you may find it difficult to get lending and financing opportunities. Financiers are likely to regard extending funding to your business as a risky proposition and reject applications for financing. In most standard financing structures using unpaid receivables such as a transaction with a factoring company, your business’s credit history, and assets are not going to impede your ability to get funding.

Keep Credit Stable

When you take out a short-term loan or you accumulate costly charges on a business credit card, there are going to be repercussions for your credit score. In contrast, using accounts receivable financing does not entail adding a new financial obligation onto your active tradelines.

Tapping into receivables’ liquidity could enable you to maintain your credit utilization ratio at or below thirty percent, which will reflect positively on your company’s creditworthiness. Likewise, minimizing the number of hard inquiries on your credit report from prospective creditors will keep your efforts to boost your credit moving in the right direction.

Safeguard Essential Assets

Businesses that need cash urgently may resort to selling valuable property such as equipment or unsold inventory. Alternatively, they may jeopardize their continued use of fixed assets that are essential to their operations. For example, a manufacturer may opt to collateralize expensive machinery to secure a loan. If things do not go as planned and it has difficulty keeping up with payments, a financial institution may move to seize collateral. In some loan provisions, a default gives financiers the ability to demand payment of a loan in full, and that could be the only way for a business to retain the assets that are indispensable in its day-to-day operations.

Collateralizing receivables or disposing of your interest in them in a transaction with a factoring company could help you avoid overextending yourself financially. You’re not bargaining with more than you can afford, and you do not have to risk sacrificing any key operating assets.