Startups and small businesses have limited resources, and to fund the working capital requirements, asset-based lending is certainly not the best option. Since most businesses, regardless of size and other factors, sell goods and services on credit, they often have enough debtors. These accounts, also known as receivables, can be used for procuring a short term loan. Traditionally, accounts receivable financing is also known as business factoring, and it is one of the oldest forms of short term financing. Here are some of the other things you need to know.
Knowing accounts receivable financing
With accounts receivable financing, business owners get the flexibility of inducing cash into the business as and when required. There are factoring companies like Interstate Capital Corporation that offer 100% assurance and support for small businesses for their immediate finance requirements. Typically, current receivables are considered by factoring companies, and debts that are due for more than 90 days are not included as a part of the collateral due to the inherent risks. Once the paperwork is done, the amount is transferred to the concerned business account via direct deposits or wire transfers. Although accounts receivable financing is easy and effective, there are charges and fee involved, which must be considered.
Benefits at a glance
Accounts receivable financing is one of the best ways to finance your regular cash requirements, especially if your business offers credit sales to most customers. With working capital in hand, you can expect to pay your creditors on time, and hence, your business reputation is never at stake. Also, you don’t have to wait to get money on your accounts receivables, which is a great way to convert credit sales into quick cash. Owners are also more assured of retaining their share of equity, and your business assets are not at stake either.
Other things that matter
While accounts receivable financing offers quick money, you will not get the full amount that you are supposed to get from the debtors. Factoring companies will only pay a part of the amount of receivables, although you can expect to get up to 80% of the total value. Also, there are fee and charges involved, which have been mentioned earlier. Factoring businesses also have the right to refuse overdue accounts.
If you are looking for short term funding, accounts receivable financing might work for your needs. However, do consider the status of your receivables and other costs associated with the deal.