If you are a small business owner, you will know exactly the struggle to get capital to fund and grow your business faced by the current business. With banks limiting credit lines and more loans businesses to switch to accounts receivable. In this article I will try to help you determine whether financing receivables, also called factoring, right for you.
What exactly financing accounts receivable?
Financing accounts receivable is when invoices or tribble accounts are amazingly sold to financing companies. It provides instant cash flows for the business and the risk of collecting accounts on circulating transferred to financial companies or factoring. Financial companies will pay the number of discounts for receivables based on age receivables. The account that passes maturity or more than 90 days is usually not accepted by a financing company.
There are three major advantages for companies that sell their receivables to financing companies.
The first advantage is that debt collection is no longer the company’s responsibility. This frees company resources to focus on other activities that are more productive. The company also receives a number of established and old funds must make an emergency plan for cash if the customer fails to pay their debt.
The second advantage for companies is the ability to free working capital. Assets that are usually tied in inventory and receivables can be converted into faster cash allowing companies to use funds to help develop business.
The third advantage is to provide and form fast financing. You don’t need to collect a tax refund and write a business plan as you might have to do to get a loan.
Although there are many benefits for companies that make up the receivables, there is also a potential weakness that must be calculated by the business when deciding whether it is the right choice. Discount costs and other costs incurred may appear high at first but over time this fee may be lower than the interest in bank loans. You must always shop to ensure you pay the lowest possible fees and weigh the cost of the interest of the bank will charge you on a loan.
Is the accounts receivable rights for my company?
This is a clear choice you can only make. There are several things to think about before making a decision. Does the money be needed immediately for companies to survive or take advantage of business opportunities? Is your company ready or have more money and expansion needs? Have you explored all the sources of funds available for small businesses?