When it comes to understanding accounts receivables finance, there are a few key things that you need to know. In this guide, we will take a look at five things you need to know about accounts receivable finance.
Accounts Receivable Financing: What is it?
Accounts receivable financing is a type of short-term loan in which a business borrows money against the amount of money it is owed by customers. This can be an excellent way for businesses to get the cash they need to keep running their operations.
In order to qualify for accounts receivable financing, businesses must have receivables that are due within a certain time period, typically 30-90 days. The business then sells its receivables to a lender(factor) at a discount and uses the money from the sale to pay for operating expenses, inventory, and other business needs.
The Types of Accounts Receivable Financing:
There are two main types of accounts receivable financing:
- Recourse Factoring
- Non-Recourse Factoring
Recourse Receivable Financing
Recourse Factoring is when a financial institution provides financing against open accounts receivable, with no customer credit guarantees.. This can be a great option for businesses who want to get immediate access to the capital they are owed from a wide variety of customers.
Non-Recourse Receivable Financing
Non-Recourse Receivable financing is when businesses sell their invoices to a lender, and the lender guarantees the customer payment. This can be a great way for businesses to improve their cash flow and keep their operations running smoothly while also being protected against customer non-payment.
Accounts Receivable Financing Can Help Your Business Grow
As your business grows, you may find that you need access to more working capital in order to keep up with the demand for your products or services. Accounts receivable financing can be a great way to get the cash you need in order to continue growing your business.
AR financing can give you the capital you need to purchase inventory, hire new employees, or invest in marketing. You can also use accounts receivable financing to manage cash flow, which can be a challenge for growing businesses.
Accounts Receivable Lending Can Give You Access to Immediate Capital
If you need access to cash right away, accounts receivable lending may be a good option for your business. With this type of financing, you can sell your invoices to a financial institution in exchange for immediate payment. This can be a great way to manage unexpected expenses or take advantage of opportunities that require quick action.
Accounts Receivable Financing is Good For Businesses With Bad Credit
If your business has bad credit or no credit, you may think that you will not be able to get the financing you need. However, accounts receivable financing is often available to businesses with bad credit. This is because the loan is secured by the receivables of your customers.
Accounts receivable financing can be a great option for businesses of all sizes. Whether you need to manage cash flow, get access to immediate capital, or finance your growth, accounts receivable financing can help. Talk to your financial advisor to see if accounts receivable financing is right for your business.