If you need financing for your medium or small business, you may want to look into accounts receivable financing. This type of financing typically involves invoice financing and provides companies with cash advances. Here are some tips for choosing an accounts receivable financing company.

Select a Company With Experience in Your Industry

Invoice factoring can be beneficial for many types of businesses, so you should look for one that has experience with your business’s industry. First, check whether other businesses in your industry utilize factoring and how they do so. If they do, you’re more likely to benefit from doing so too. Industries where businesses commonly use accounts receivable financing include retail, transportation, construction and distribution. A good indicator that you will benefit from this type of financing is having a long net term.

Check the Company’s Rates and Terms

Before deciding to work with a company, check the rates and terms it offers. Rate structures can be flat, with the rate remaining the same, or variable, with more fees accruing the longer the invoice remains unpaid. Variable rates are sometimes referred to as tiered rates. Rates and terms may differ according to your business’s industry, the type of service you provide, the quality of clients or the net terms and volume of invoices.

Know the Services the Company Offers

There are several types of services these financing companies may offer. The two most common are invoice financing, where accounts receivables are used as collateral for loans, and invoice factoring, where a business’s accounts receivables are sold to the company in exchange for a cash advance. Other services include recourse, non-recourse, spot financing and whole ledger financing.

Review All Agreements and Paperwork

When you choose a company, get all agreements in writing and request copies of all paperwork involved in your financing agreement and account. This should include the financial contract that explains the terms and costs associated with your plan. It should also include any rates, cancellation fees and terminology you and the financing company agree to. Getting agreements in writing and saving copies of paperwork can help ensure you have records of them to refer back to if you need to.

If you’re interested in this type of financing, you should begin by checking whether it’s a good fit for your company. Review the pros and cons of accounts receivable financing and determine whether or not they will benefit your business.