Asset-based financing – sometimes referred to as asset-based lending or ABL – has come to the forefront as a popular funding solutions for small businesses across all industries. However, there is quite a bit of confusion over exactly how assets-based financing solutions work and how businesses can use them.
Defining Asset-Based Financing
Asset-based financing is a catch-all for funding solutions structured around items owned by a business. Equipment, property, and other assets can be used to create financing in place of traditional debt-based loans. Sometimes, asset-based financing is a line of credit, but by far one of the most robust, efficient, and versatile forms of asset-based financing is accounts receivable factoring, which is structured around invoices. Receivables are assets owned by a business. Once a sale is made, an invoice is generated, which acts as a note for future payments, typically with staggered schedules of 30, 60, or 90 days in which customers need to provide payment.
Accounts receivable factoring leverages those invoices for on-the-spot capital, turning them into immediate cash that businesses can use for any purpose they want. Because the invoices are essentially being sold for immediate cash, there is no debt involved, and the fast turnaround boosts cash flow. Going one step further, businesses can use accounts receivable factoring to convert parts of invoices to cash, whole invoices, or entire batches of invoices. The end result is strong cash flow, and businesses can make plans for the future instead of waiting on sporadic customer payments.
Asset-based financing from New Century Financial
New Century Financial offers comprehensive asset-based financing in the form of accounts receivable factoring. We convert invoices to cash within 24 hours and give businesses the control they want by allowing them to choose which invoices or parts of invoices get factored. There are no long-term contracts or hidden fees with our factoring services, plus we offer a suite of tools so business owners can track payments and even check on the creditworthiness of their customers, which assists in making decisions and building relationships. To learn more about accounts receivable factoring, contact the team at New Century Financial today.