Leveraging Your Accounts Receivable and Taking Control of Your Cost of Capital

The business borrowing relationship is oftentimes complex. Owners are motivated by the promise of reduced rates and fees, but for companies in need of short-term working capital, the availability of funds trumps price, and the owner feels subordinate. Accounts receivable insurance increases your borrowing capacity and brings balance to the relationship.

Most high-growth companies with tight cash flow must borrow, yet decisions to enter new markets are resource-intensive and time-consuming. Accessing working capital beforehand is the wisest choice—especially for startups—but it is a rarity. Companies often fail in their first three years due to lack of working capital in sufficient quantities at acceptable rates. Orders alone do not equate to success, and the underfunded business can swiftly erode in spite of increased volume.

In my years of dealing with business owners, many businesses first line up vendors and orders, and then explore funding:

With trade credit insurance introduced at the earliest stage—when critical vendors are locked in—you now can secure upfront funding:

Applying for a credit insurance policy costs you nothing, and gives immediate ability to take control of your working capital. Purchasing a policy lowers your cost of capital, increases borrowing capacity, and gives you choices. You only purchase the policy when you need it, after you have decided what the right borrowing option. The best funding options changes over time, yet the need for accounts receivable insurance remains constant. Asset-Based Loans (ABL), recourse factoring or even a combination may be a sound choice. A credit insurance policy underpins every one of these scenarios.

Whether a startup or an established firm, taking the time to nail down your working capital options is the smartest move. Waiting until orders arrive is a recipe for ruin, and it can always be avoided. Applying for a credit insurance policy before your first order gives you the ability to assess all options and decide what is right for you.