For those businesses that are struggling for money, accounts receivable financing may be the way to go. With this type of financing, no additional debt is created. You simply take your accounts that have not yet been paid off and basically sell them to a company to receive the cash from them that you would have normally been getting. It's sort of like a cash advance. That money would have been paid to you by your customers, but while you are waiting you need money now to keep your business running. Accounts receivable financing will allow you to do that.
Definition of Accounts Receivable
Accounts receivable refer to all of those accounts that a business should be getting money from but has not yet. These are basically unpaid bills from customers. The money is owed to you, it just has not yet been fully paid.
Definition of Accounts Receivable Financing
Receivable factoring refers to a financial plan to get your business out of hot water. You take your accounts receivable and give them to a factor company. This company pays you the money from those accounts and takes them over. Once the customer finally pays, it will go to the factor company since you already got yours from them.
Most businesses might consider taking out a loan while they are waiting for their money to come in from unpaid accounts. However, this is not only costly with interest rates and money that needs to be paid back, but it is also not guaranteed. Any business can ask for a loan, but it does not mean they are going to get it. Also, it makes a long-term problem when you only needed a short-term solution. You will be stuck paying back that money for a while, and have a debt. With accounts receivable financing, that is not the case.
There are plenty of reasons why a company would choose this type of financing options, such as:
If any of these reasons apply to you, consider accounts receivable financing to get you the cash you need now.
About the Author
Michael Cooper is the Owner of Pacific Business Capital Corporation, an accounts receivable financing company based in Costa Mesa, CA. The company provides fast and efficient factoring of receivables and other means of asset based financing for many clients across the United States.