How to get instant cash for your business?
There are various ways for a company or a business to receive financing, such as SBA loans, Angel investors, business credit cards, etc. One method for a business to secure the funding it needs is with an accounts receivable loan, otherwise known as accounts receivable financing.
What are Receivables?
A company provides goods or services or both. Those goods and services are delivered to customers. If some or all of those customers have received the products or services but have not yet paid for them, they are debts known as receivables. What is an Accounts Receivable Loan, Otherwise Known as Accounts Receivable Financing?
What is an Accounts Receivable Loan, Otherwise Known as Accounts Receivable Financing?
When a company uses its receivables to receive financing, that’s accounts receivable financing. This kind of loan allows a company to attain capital that was otherwise unpaid debts. Having to put up collateral, which occurs with most traditional business loans, puts a company at risk. With an accounts receivable loan, there is no need for collateral.
What is a Factoring Company and How Do They Operate?
When a business applies for accounts receivable financing, they refer to a factoring company. These companies are not lenders. What they do is purchase receivables at a discount. The company gets the funds, and the factoring company makes a profit when the receivables are paid in full. Some factoring companies work with all kinds of businesses that sell goods or services. Others focus on these businesses, but they specialize in the type.
When a finance company, otherwise known as a factoring company, in this case, agrees to give a business this kind of loan, they take on the default risk of the receivables. Therefore, the company who receives the credit doesn’t have to worry about collecting unpaid monies. They can, instead, focus on their products and services, their current customers and gaining new customers. For example, a company may use the resources to purchase inventory, meet payroll, to fund a massive advertising campaign, and more. A factoring company can also run reports on current clients that also contributes to freeing up company time and resources, such as running credit checks. H
How Much Does a Company Receive?
On average, a finance company will give a business approximately 70 to 90 percent of its total receivables. The age of the invoices plays a role in the percentage. Also, companies that are large and well established are less of a risk than companies that are smaller, new or not well-known. That said, many smaller and less-established companies receive AR loans.
What are Important Points About an AR Loan?
Accounts receivable financing can be a godsend to many businesses, especially small businesses. If approved, it results in immediate funding to continue to grow a business without having to worry about customer debt. However, there are important points to consider. These kinds of agreements typically come with a specific length, and it is crucial for a company to pay attention to that and negotiate the range that would be right for the business. Furthermore, accounts receivable financing typically comes at a higher cost than your standard business loans. Finally, it’s essential for a company to make good choices when choosing a factoring company. If the company uses aggressive tactics to obtain monies clients owe, that can ultimately hurt the bottom line of the company receiving the financing. Therefore, a company must understand what the approach of the factoring company is.
An accounts receivable loan is a quick way for a company to attain capital with fewer risks. It is especially useful for businesses who may be having a difficult time getting a traditional business loan, such as start-ups.
Neal Business Funding offers Accounts Receivable Loans for many business types. Contact us at NEALFUNDING.COM for information to see if your business qualifies for this type of loan.