The account receivable entails receiving money in advance from a lender against invoices that are outstanding on the part of your clients.
The procedure for obtaining these loans are as follows:
The business will commit part of or all invoices that it has raised on several clients to a financing company. The company will pay cash against these invoices, and then charge and a fee for this service. This fee has already mutually agreed between the two parties.
Kinds of Accounts Receivable Financing
Selected Invoice Loans
This kind of financing allows a business to get the funding against the invoices of its choice. A good thing about this kind of loan is that the financing company will usually pay the entire amount of the invoice. The fee charged for this service is comparatively lower.
The business can obtain this kind of financing while keeping its balance sheet intact since there is no adverse impact of this loan on the books of the company.
Assets-Based Accounts Receivable Loans
This method allows the business to get all of its outstanding invoices discounted by a lender. It is known as asset-based lending because receivables are part of the assets of a company.
Factoring of Accounts Receivable
This type of financing allows the business to sell unpaid invoices to a factoring company. The problem with this kind of funding is that the lender wouldn’t pay the entire amount of outstanding invoices. Instead, it would only pay a certain percentage. The processing fee will be charged on the final disbursement amount. Businesses usually do not get all of their invoices financed in this manner because the charges per invoice are comparatively higher.
Benefits of Accounts Receivable Loans
There are many benefits of obtaining an accounts receivable loan. The section below will discuss some of them in detail:
Getting Valuable Business Information
No one would want to work with a person or a company that takes more than reasonable time in paying their bills. One of the benefits of obtaining an accounts receivable loan is that the companies that provide these loans have a database of most people you are doing business with, and once you offer them an invoice raised on a later date, the company will immediately let you know the details about the payer.
It will also allow you to stop or limit your business dealings with such people so that your money does not get stuck up with them again. This way, you get more from fastcapital360.com on account receivable loans in the form of useful information.
Instant Cash Receipt
Compared with the time required for obtaining other kinds of loans, accounts receivable loans, are rather swift and easy to get because of their quick processing time. It becomes beneficial when a business is experiencing a cash shortage and needs funds on an immediate basis. If the processing of loan took more than a week under the above scenario, you would have either incurred some hefty loss due to the unavailability of cash or missed a golden opportunity for investment.
Accounts receivable financing allows you to lay your hands on the case instantly. The only processing required on the part of the lender is checking the invoices committed by yourself, and approving your application.
The actual disbursement of cash will not take more than two days after approval. This kind of loan best suits those shrewd businessmen who do not want to let go of a single opportunity for growth and expansion. The availability of ready cash allows them to reap benefits from every opportunity that comes their way.
No More Waiting for Clients
Time is the most pressing issue with outstanding bills. Accounts receivable financing offers businesses an opportunity to encash these invoices and get their hands on the cash. There is no need for them to wait for the clients to pay up.
Since you have already provided the good to your customers, your money is stuck with them. You cannot roll that money into purchasing raw materials and more production until you have received full payment against them. After having received money against those invoices, you don’t need to wait for payments from your clients to carry on with your production.
Selecting New Customers
If you want to keep your cash flow lively and thriving, you need to have a customer base that is punctual in payments. The factoring company allows you to filter out good payers from bad payers when you are taking new ones onboard. If you are consistent in this approach, you will find out over time that your entire customer base consists of people who are punctual in their payments.
Taking Care of Your Cash Flow
Businesses experience cash flow issues at some point in time. It happens because you are punctual in your payments, but your clients aren’t. It creates a cash gap, which becomes so vast after some time that you find it challenging to carry out your daily operations.
The cash flow problems emanating from such a situation may eventually take your business down. When you are facing this kind of difficulty, you should opt for accounts receivable loan, which will not only allow you to fill your cash flow gap, and it will also help you in finding new opportunities for growth and development.
The Final Word
The cash flow of a company involves, in simple words, the amount of cash coming into the business, and going out from it. A business with robust cash flow is a successful business. However, the cash flow of a company will only remain tremendous and healthy when the cycle keeps spinning.
Accounts receivable financing allows you to make sure that you get your money against invoices even if the customer doesn’t pay on time. There is an old saying that time is money. Accounts receivable loans allow you to make use of your money at a time when you need it the most.