The Franchise Forum

Expert financial advice, content, and strategies for your franchise business

Accounts receivable financing for your franchise

What is accounts receivable financing?

Accounts receivable (AR) financing is the process of selling your invoices to a lending partner for expedited working capital at a nominal fee, usually around 2%. This provides businesses numerous benefits, including the ability to act on immediate needs or competitive strategies rather than waiting for cash to come in.

Why is accounts receivable financing useful?

Accounts receivable financing eliminates the cash flow gap created when your franchise delivers a good or service that is not paid for immediately. You likely know that it’s common practice for customers to take advantage of payment terms and delay paying until the due date, or worse! After all, having working capital on-hand is as essential to them as it is to you. Financing your receivables provides access to cash for a franchise that’s driven by your initiatives rather than stunting your growth by waiting on payments to process.

Who uses accounts receivable financing?

Just about any industry can be supported by AR financing services; however, not every business model can qualify. Business-to-business franchise concepts that invoice customers in industries like staffing, healthcare, janitorial, and commercial services, often encounter issues qualifying for sufficient bank financing, so they frequently turn to alternative financing options. This can be due to limited collateral, insufficient operating history, or obstacles related to credit. Businesses that fall into these categories are ideal candidates for accounts receivable financing solutions.

How does accounts receivable financing work?

Accounts receivable financing may sound complicated, but it can be explained in six simple steps:

  1. Your franchise provides a good or service to a customer.
  2. An invoice is generated for the transaction.
  3. You submit the invoice to an accounts receivable financing provider.
  4. The provider advances you a percentage of the invoice value, typically 80%–90%.
  5. Your customer pays the provider for the invoice using your original payment terms.
  6. The provider then pays your outstanding invoice balance, minus a service fee, typically 2%.

We hope that this helps shed some light on the often misunderstood practice of AR financing. Industry-leading providers like LSQ are revolutionizing receivables management by providing more value to business owners, including state-of-the-art technology, same day working capital, and expert back office services. Learn how you can leverage your receivables to successfully finance your franchise needs.

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