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AR financing
Accounts receivable financing is the selling of outstanding invoices or receivables at a discount to a finance or factoring company that assumes the risk on the receivables and provides quick cash to your business. That was a mouthful, let's see if we can help it make more sense. Basically, accounts receivables are given to the finance company, and the finance company pays you for them. The amount they pay depends on the account, the more current the invoice is, the more you are going to get paid for them. If you have invoices over 90 days, there is a good chance they are not going to get financed. The finance company is basically buying the money owed to you at a discount. They may pay you 70% of what is owed. So, why would you want to do this? Why would a small business benefit from selling their accounts receivable? There are three main benefits in doing this, they are as follows: 1. You no longer have to deal with collections. If you are a small organization, using man power for collections can be costly. When a finance company buys your accounts receivable, and the right to collect them, they also buy the responsibility to collect on them. AR financing is one of many financing options. Understanding the options available to small businesses is key to success. Take the time to look into and understand the various forms of business financing, and select the ones that are right for your business. |
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