When thinking of accounts receivable financing, think of it as a business loan on your receivables without the bank and without the waiting. In essence, accounts receivable financing is when your company uses your outstanding customer invoices, or receivables, as collateral. Since one of your company’s greatest assets are your receivables, being able to draw upon their value in times of need, will finally put an end to those concerns of cash flow. So, what are the options with accounts receivable financing?
Finance companies involved with accounts receivable financing have a number of financing options that allow business owners to draw upon the value of their outstanding invoices. In some cases, companies may choose the route of using invoice discounting where companies can use their outstanding customer invoices as collateral and borrow money from the finance company. Most finance lenders allow their customers to continue to draw upon invoices going forward. Customers are able to have a running credit limit and will benefit from immediate cash provided they maintain their payment frequency. The benefit in this approach is discretion as the company is able to use much needed funds without their own customers being involved. Earlier invoices garner higher upfront cash and returns while older invoices are less likely to be valued by the finance company.
Another option with respect to accounts receivable financing is invoice factoring where the finance company provides upfront payment on receivables and then proceeds to collect from the company’s customer directly. The benefit of this approach is that it allows some companies to make a clean break from unpleasant customer relationships or to break away entirely from a given market or industry. However, factoring companies are professionals and understand the importance of retaining strong customer relationships. As such, companies often come to rely upon factoring companies to strengthen their customer relationships. In this sense, it’s perceived more as receivable collection outsourcing.
For business owners who want to put an end to their cash flow concerns, nothing is as impactful and flexible as accounts receivable financing. There are a number of options available to suit almost every need. Do away with those business loans and credit lines and use your receivables to your advantage.