What To Look For In An Accounts Receivable Financing Program

By: Kris Koonar

Let's start with what account receivable financing is all about? It is a program of converting your business invoices, private or government, into cash easily and without any personal guarantees or long term contracts. Sometimes small business owners have to struggle hard to obtain capital to meet the cash requirements in the organization. In comparison, loans and credit are limited to an extent, so the question of what they should do to overcome this crisis arises. The remedy for this financial crisis would be an accounts receivable financing program.

Accounts receivable financing helps to maintain cash flow in your organization and at the same time give you an opportunity to maintain a steady and good relation with your clients. Accounts receivable financing offers numerous benefits to its client, which helps them in the smooth running of their business. Let us examine the advantages of accounts receivable financing and procedures followed prior to availing of this program.

Sufficient capital for the daily operations and the expenses in your company are easily got. You can outsource your accounts receivable management to another company and concentrate on the growth of your organization. As far as working capital is concerned accounts receivable allow you to set free the working capital, which is tied up in inventory. As such no business plans or statements are required to receive cash it immediately gives you the money to relieve you from the financial crunch.

Compared to the payment of the invoice from the client that takes 30 to 60 days and sometimes even more than that, accounts receivables funding process takes 24 to 48 hours, once the invoice is submitted. The funding amounts vary on the terms of the business loan. In the first installment 80% will be paid of the invoice value and in the second installment the remaining 20% is given to you after a deduction of 1% - 5% as factoring fee from the amount paid by your client company.

Before entering into an agreement with an accounts receivable financing company, keep a few points in mind. There are certain pitfalls in this method of financing, and one of them is that the invoice is either not funded or funded on the face value which means only the first installment is paid. The problem here is not related with the invoice but the company to which the invoice was issued. So you should do a thorough research about the companies you are working with and inspect the contract as well as the terms and conditions and try to negotiate discounts.

You should also consider whether the financial strategy matches with your business plan and if you have not yet prepared any plan please prepare it first before drawing additional money. You should also review your current economic conditions and think before any kind of business expansion.

Definitely accounts receivable financing is better option to overcome the monetary crunch in your company, but you should always consider how it could facilitate you and your company's growth.

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