An Introduction To Accounts Receivable Financing

An Introduction To Accounts Receivable Financing



An Introduction to​ Accounts Receivable Financing
Accounts receivable financing or​ factoring, as​ it​ is​ called in​ the financial industry, can be combined with various other financing methods to​ help a​ business to​ accomplish an​ effective cash flow process.
It's all about the business owner's mental attitude and enthusiasm .​
One has to​ be aware of​ his or​ her point of​ view and how they think about their business .​
Of course one can't make up their own rules about how commercial finance companies, financial institutions, and banks work .​
What they can do is​ opt to​ alternative financial resources that are available to​ them .​
When regular small business financing methods such as​ credit and loans are limited, some small business owners turn to​ an​ accounts receivable finance company for the help they need.
As an​ entrepreneur and small business owner, the individual may well know the struggle of​ attaining capital in​ order to​ finance the growth of​ their business .​
Cash flow shortages can seem like a​ real nightmare, even to​ the most optimistic persons.
Accounts receivable funding can be a​ form of​ quick financing .​
It does not require a​ business plan or​ tax statements .​
The use of​ an​ accounts receivable factoring company has saved many businesses from the grips of​ financial terror and ruin.
Accounts receivable loans are the selling of​ outstanding invoices or​ receivables at​ a​ lower price to​ a​ finance company .​
The rate at​ which a​ company can sell their invoices will be anywhere from 70-90% of​ the original value of​ the available invoices.
The finance or​ factoring company will complete a​ credit analysis on the account debtors (Payors), whose invoices the business plans to​ factor, and credit limits are assigned on a​ per account debtor basis .​
The advance rate that is​ assigned to​ the customer's account will depend on the age of​ the receivable and the account debtor's credit rating .​
Any accounts receivables that are over 90 days old are typically not financed .​
An adequate advance based on the unpaid invoices can provide substantial cash for the necessary bills and other costs assumed with running the supplier's business.
When a​ business takes the opportunity to​ outsource their accounts receivables to​ a​ financial company, it​ frees up their own resources, enabling the business to​ focus on more productive activities such as​ selling the company's products and services.
Any business manager who is​ considering the use of​ a​ factoring company to​ help them liquidate their invoices should ask themselves the following questions:
1. is​ the immediate cash-on-hand really necessary for the survival of​ the company?
2. How does this action match the company's business plan?
3. How can the company take advantage of​ the opportunity in​ more ways than one?
4. is​ the business ready for more cash and growth expansion?
5. Have other possible sources of​ business financing been explored?
6. What are the current trends in​ the industry? is​ there a​ weak or​ dry spell on the horizon?
7. is​ it​ really a​ favorable time to​ finance?
Carefully consider all options and reasons .​
For some businesses, the discount rate could mean the difference between survival of​ the business and going bankrupt .​
Spend the necessary time to​ dig deep to​ investigate the factoring companies being considered and their costs.
Using accounts receivable financing or​ factoring can buy a​ business time to​ eventually qualify for a​ regular line of​ credit from a​ financial institution .​
It can also give the business the necessary time and cash flow to​ boost income, so that the business can grow and thrive.
Be careful when selecting a​ receivables finance agency .​
Pay close attention to​ the fine print of​ the contract; the factoring company's contract might include invoice minimums, monthly minimums, regular audits, facility fees, and other hidden fees .​
The business manager should make sure to​ notice and understand any excess or​ assumed costs or​ fees, when utilizing a​ receivables factoring company.
Once the facts of​ the various offers are known, the decision maker will be better prepared to​ know a​ good factoring company when they see one .​
With some receivable loan agencies, an​ account will be set up within three- to​ five- working days, while other providers may take up to​ 30 days .​
Some factoring companies can only finance your invoices up to​ a​ few thousand dollars, while others have the financial resources to​ support your business invoices up to​ ten million dollars .​
These are all important options to​ weigh when choosing a​ factoring service.
The use of​ an​ accounts receivable financing company can be a​ very advantageous .​
Such a​ service allows the business to​ focus on sales and operations, without having to​ worry about invoices getting paid on time.




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