Accounts Receivable Financing As An Alternative To Bank Loans
Considering a bank loan to provide a cash influx to your business? Maybe you’re in a tight spot, or maybe you just want to finance some quick growth. You could take out a loan from a bank, but the cost of interest will lessen the impact of the cash, on top of increasing your monthly accounts payables. There are other options that will cost you less.
Accounts receivable financing, also known as factoring, can provide you with the financial freedom you need at a lower cost than a bank loan. The factoring process works by selling your accounts receivables to a third party. The third party factoring company purchases the debts from you at a reduced rate. They then take on the collection task, not only providing you with much-needed cash, but also relieving you of the task of fighting your customers for the payments. No more monthly calls to an accounts payable clerk to get a check; the factoring company handles all of that.
Moving the risk of nonpayment off of your company and onto the factoring company means you can carry on with the business of getting business done without the worry of bad debt on the books. You built your organization with the intent of getting a product or service out to consumers, and every moment away from that prospect is money lost. Factoring isn’t just a loan, it’s also a way to outsource your accounts receivable department at a low cost. Whether your payment terms are 30, 60, or 90 days, the accounts receivable financing entity will manage the repayment directly with your customer, and you can turn your focus back to profit margins.
Factoring companies provide another valuable service to their customers, by vetting their customers’ debtors properly to ensure good credit risks. They check the credit of the debtors and advise their customers of risky prospects. Some accounts qualify for free credit insurance as well, depending upon the terms of the agreement. In addition, factoring is available regardless of your business’s credit, because the credit of your customers is what drives the process. So even if your need for cash stems from bankruptcy or a loss of capital, you may still qualify for accounts receivable financing.
If you’re looking for a solid way to move cash back into your business, look toward accounts receivable financing. It will provide a definite, steady cash flow in an unstable market, a quick capital injection when you’re in need, and a hand with the workload.