If you rely on monthly invoices to fund your business expenses, and if even a single late payment has you dipping into your personal bank account for help, it may be time to consider accounts receivable financing. Invoice financing, or factoring, involves selling your outstanding invoices at a discounted price to a financing company that will assume the risk on the receivables and in return, pay you the outstanding balance of the invoice owed less fees. It comes with minimal risk to you but substantial reward. If you’re considering factoring invoices to obtain fast cash, you should consider the pros and cons of doing so first:

Pro: Quick Cash

Obviously, the greatest benefit of factoring is the fast cash. As a small business owner, you may rely on every invoice to pay employees/pay your bills/purchase more materials/pay rent, and when an invoice is late, you may fall months behind. Accounts receivable financing allows you to obtain fast cash without signing on for a loan or racking up an outstanding credit card bill.

Pro: Hassle Free

Maintaining the books can be time consuming, especially when you have to review them for past-due invoices, draft late notices and send them out. You can eliminate that headache by passing off the invoices to a third party, who then becomes responsible with following up on customer invoices while you focus on other more important business matters.

Pro: No Collateral

Factoring is not a loan, as you are selling something in exchange for money, not borrowing money on a promise. As a result, it requires no collateral, making it ideal for small businesses that don’t have much in the way of collateral to begin with.

Con: Cost

Accounts receivable financing does come with a fee, which is usually one to four percent of the receivable. Depending on the amount owed, that can be a pretty hefty fee for some fast cash. Because of the high rate, most businesses only turn to factoring as a last resort.

Con: Stigma

Unfortunately, factoring has gained a bad stigma, and companies that rely on it are viewed as “struggling,” which may make vendors, investors, customers and other lenders unwilling to work with you. To mitigate possible tensions this, let all involved parties know what is going on and why.

Con: Loss of Control

You may enjoy working with one or two particular customers, but if they have a bad track record of paying you in full and on time, the factoring company you work with may request that you cease all business relations with said client. For some business owners, this is a major drawback of factoring.

Accounts receivable financing is not for everyone, but it is a great solution for small businesses that rely on monthly invoices. If you’re not sure whether or not it’s right for you, carefully weigh the pros and cons mentioned above.