Account Receivables Financing

Accounts receivables financing is an age old method used by small business owners to obtain funding that is needed. Accounts receivables are also known as debts or invoices; they are the money that is owed to a business paid by clients and customers. Accounts receivables financing indicates that a company makes an arrangement with a factoring or finance company which will buy the invoices at a discount. In return, the seller receives cash quickly. Those who are selling newer accounts often benefit the greatest from these transactions. For those who are running businesses but need immediate cash, account receivables financing can be a helpful solution. These transactions are often turned to after a business owner utilizes loans and their line of credit. Accounts receivables are assets therefore they are an important avenue that businesses have when needing additional revenue streams.

When choosing accounts receivables financing you will either sell the receivables (invoices) which is known as factoring, or you will pledge those who pledge their accounts receivables are controlled by the lender. If there is a default, the borrower takes the loss. Those who sell their receivables place the power of the account in the buyer’s hands. For this reason, many prefer to sell or factor their accounts receivables rather than pledge them. When a business sells or factors their accounts receivables, the businesses’ customers receive notification and will then make payments to the new owner or factor. Since those who buy accounts receivables are assuming the responsibility of collecting the invoices; there is more of a credit factor involved. Those who wish to sell their accounts receivables will need to show good history of customers that regularly pay on time and meet their responsibilities.

Many business owners choose accounts receivables financing because it is a flexible way to raise funds. Because accounts receivables are assets, it is often that when a business begins to expand that more capital is needed and tapping into this source of financing makes a worthwhile solution. Another benefit to account receivables financing is that they can be used as down payments or securities to obtain loans. Also, when you choose account receivables financing you can create more capital and free up your inventory and collections. This creates more opportunities for selling, which in turn helps your company to prosper. By selling your accounts receivables you pass of the risk associated with the invoices. It’s important, however, to ensure that you understand how much of a discount you are passing off the accounts for. Though some business owners enjoy the fast cash, they may find that over a long period of time, the fees and charges associated with the financing can add up.

Account receivables financing should be used responsibly and with careful thought and planning can help to expand and grow your business. You may find that it’s best to weigh all of your other lending options before deciding that account receivables financing is your best option. For many, account receivables financing is a solution that is used as a last resort and one that can help prevent a company from declaring bankruptcy.

When considering accounts receivables financing I’s important to realize, that you must take the time needed to choose a factoring company that will best meet your needs. Choose between recourse and non-recourse factoring companies. A recourse factoring company is a good choice for those who want to pass on the responsibility and risk associated with accounts receivable to the factor. This can have benefits but it also has its own risks. If you choose a recourse factor company and the debt isn’t repaid, you will be responsible for the debt plus additional fees. Take the time needed to ensure you select the best account receivables financing company for your needs.