Accounts Receivable Financing

                                                                                         

Accounts Receivable Financing

Accounts Receivable Financing can be defined as a business loaning process. In this type of financing, a company can borrow money making use of the accounts receivables as their collateral. This is a practice which can be followed both by small and big firms.

What is its role?

Financing the growth of a company is quite a challenge and the new ventures or companies banking on credit terms will be in need of more working capital sometime or the other, for growth. This type of financing actually releases instant cash flow and a company undergoing a cash flow shortage is sure to benefit from this service. Business owners actually will not have to look up to the banks for loans anymore to offer their customers the credit terms.

Which companies qualify for this?

No industry follows the same method of invoicing and naturally each is evaluated differently. Also, not all the factoring companies accept every business. The thumb rule here is that the business must be able to sell a worthy customer a verifiable or an acceptable receivable by the account debtor. The receivable financing system can be used by any industry which delivers products or provides services to commercial accounts. Also, the sale should be a final one without any disputes or eventualities and the product or service must be delivered completely to qualify the receivable as fundable.

What is the difference between receivable funding and bank loan?

Factoring houses usually focus on the creditworthiness of the company’s customers while the banks’ main focus remains on the cash flow and financial history of the company. Accounts receivable funding is unlike a loan and ensures the company of a lesser debt on the balance sheet. Also, with the factoring companies, the decision making is a faster process than the banks which usually take a week or longer.

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