Is Accounts Receivable Funding Right For Your Company?

Posted by maryparker on November 4th, 2012

All small business owners are aware of the difficulties and struggles that are involved in the task of trying to obtain capital in order to fund their businesses and also for promoting the growth of their businesses. Now, one might think that banks are a good solution but it is actually the contrary because these days banks are limiting the lines of loans and credit. Therefore it makes more sense for businesses to turn to something useful like accounts receivable funding in order to obtain accounts receivable finance. This process is also known as factoring in the financial jargon. 

Those who aren’t aware of what accounts receivable funding or factoring is would probably be wondering if it is good enough for them. In case of accounts receivable finance, the company can borrow money by using accounts receivable as collateral. This practice is followed by all kinds of firms, major and small alike. It is quite challenging to finance the growth of a company or to generate working capital. Accounts receivable financing is a sure-shot method of generating instant cash flow in a company and so it is perfect for companies that are experiencing a severe shortage in terms of cash flow.

The catch in case of accounts receivable funding is that the factoring company does not accept all types of businesses. Since different industries follow different methods of financing therefore each of them has to be evaluated in a distinct manner. The rule of the thumb here is that in order to qualify for receiving accounts receivable finance, the company in question has to be able to sell a trustworthy customer a verified receivable by the account debtor. Moreover, the sale should be final in nature in the sense that there shouldn’t be any disputes arising in case of the product or service being sold.

Accounts receivable funding and funding from the bank aren’t the same thing, these two methods are poles apart. In case of bank funding, the primary focus is on the financial history and the cash flow of the business or company in question. On the other hand the accounts receivable finance method focuses on the creditworthiness of the customers or clients of the company. When faced with the dilemma of choosing bank funding or accounts receivable ones, it would be best to go for the latter because it is faster and it doesn’t require a lot of paperwork.

Accounts receivable finance is an excellent method of getting money in a short period of time. In a majority of the cases, the factoring companies are able to give its clients the payment for invoices within a day’s time. If this is the first time that you are trying out accounts receivable funding for your company then it might take more time, but this is just a one-time thing, it won’t be the same for future collections. A tip here would be to establish and maintain a good relationship with the factor company of your choice so that you will be able to get the payment really quickly.

It is very difficult for a company that had been in existence for quite some time to have an impressive credit history which is void of blemishes. In fact, it is equally difficult for a new company to build up a great credit score. Thus, these companies wouldn’t be able to obtain finance from a bank. Fortunately, these companies can rely on accounts receivable funding in order to get the accounts receivable finance that they need. After all, it isn’t for any reason that this method of financing is considered to be one of the most popular ones during this present scenario of widespread global uncertainty.

If you wish to promote your business and are lacking cash then accounts receivable funding might be the right option for you. It is a good way of accumulating accounts receivable finance in ways which are different without being difficult.

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maryparker

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maryparker
Joined: November 17th, 2011
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