5 Helpful Facts About Accounts Receivable Financing
Funding commercial ventures is always challenging, especially since most business ventures are almost always in need of capital. Many times, the hope is that this cash flow come from the profit the business makes, but there are other times when the profit has to supplemented. It is at this point the many businesses look to financing as an option. One form of financing that businesses can choose is that of accounts receivable financing, also known as factoring, which is based on your customer accounts. Here are 5 helpful facts about this type of financing so that you can decided if it’s best for your business.
1. Immediate Cash Flow
The most beneficial fact about using accounts receivable is that you will have rapid access to liquid assets. This type of lending can have as quick a turnaround as 24 hours, but generally does not take longer than two weeks. This makes it an easy solution to cover expenses. However, companies should be aware that this type of lending does come at a higher interest rate than others.
2. Time Saving
Because of its quick turnaround time, using accounts receivable financing can save your business time in two ways. First, you can quickly reinvest into more inventory. Secondly, you no longer need to expend energy on old accounts. But be warned that investors in factoring relationships are not collection agencies and should not be handed accounts that simply are defaulted. The unpaid invoices could be added back into future factoring contracts.
3. Collateral Free
The third fact about using this alternative source of lending is that it is collateral free. The accounts themselves secure the lending amount as they are presumably bartered to the lender in exchange for capital.
4. Retain Ownership
The distinct advantage of factoring is that owners do not have to actually relinquish any part of their business. The accounts are disengaged from the business at the point of sale. The only disadvantage is that should businesses choose to continue an accounts receivable relationship with a lender, the lender could refuse certain invoices based on the history of the client.
5. Be Careful of Fraud
While factoring can be advantageous, those entering into this type of financing arrangement should carefully examine the terms to make sure there is no violation by either party.
Whether it is to start a company, increase a company, to buy or lease equipment, or even to pay employee salaries, companies depend on a steady cash flow. Accounts receivable financing is a great way to get quick assets while retaining control of your company.