|
||
AR financing
Accounts receivable financing is defined as the selling of outstanding invoices or receivables at a discount to a finance or factoring company that then assumes the risk on the receivables and provides quick cash to your business. It is important to keep in mind that the amount of value assigned to the account depends on the age of a receivable. For example: a more current invoice will pay more than one that is older. Also business owners should understand that any accounts receivable over 90 days typically are not financed. Accounts receivable financing may also be known as accounts receivable factoring or accounts receivable funding. Small to mid-size companies can benefit substantially from the ability to quickly and economically turn their Accounts Receivable into cash or working capital.Accounts Receivable financing is based on business and personal credit scores.It is important to realize that you must have your personal and business finances in order to subscribe to a Accounts Receivable Financing Program. There are several benefits to Accounts Receivable Financing.Some of these are:
While these are some of the benefits to factoring your accounts receivable, business owners should also understand that there are potential drawbacks to using this method to finance your small business. One of the biggest downsides to accounts receivable financing is the cost. While a 5% discount fee and other charges might not seem high this month, over the course of a year the costs can greatly exceed the interest on bank credit or a loan. Rates can vary widely among companies so it is crucial to shop for the best deal and contract. Business owners who are considering this method of financing for their small business should consider the following questions:
While taking the accounts receivable funding plunge can be the difference between company survival and bankruptcy savvy business owners will carefully consider all options. It is important to keep in mind that the factoring industry is not as regulated as banking. You should spend the necessary time to investigate the companies you are considering working with. Also be sure to inspect contracts and negotiate discount rates. The bottom line is that using accounts receivable financing can buy time to eventually qualify for a regular credit line from your bank.
,
|
||
Copyright 2003-2020 by BusinessKnowledgeSource.com - All Rights Reserved
Privacy Policy, Terms of Use |