ACCOUNTS RECEIVABLE FINANCING FOR SMALL BUSINESSES

2007-03-08 10:33:40

( Insurance )



Businessmen can generate immediate cash flow through accounts receivable financing wherein outstanding invoices are sold for less than its total value. A service fee is deducted from the balance of the invoices which is remitted after collection.This type of financing is also known as accounts receivables factoring.

Accounts receivable financing provides immediate cash which businessmen can receive after shipment and delivery of products purchased by their clients. Factors are the persons who provide accounts receivable financing to businessmen. They conduct an assessment of the credit worthiness of the businessmen’s clients prior to financing the invoices. The assessment will determine the credit worthiness of the client and assess the risk of providing accounts receivables financing.

Businessmen are not borrowing money with accounts receivables financing instead they are actually receiving cash advances for their collectible invoices. The factor is not assessing the businessmen applying for accounts receivable financing rather it is assessing their clients. Thus, even start-up companies with no track record yet can avail of accounts receivable financing.

Accounts receivable financing is particularly beneficial to small businesses which normally run through a stage of cash shortage to finance business operations. It is important for small businesses to increase capital requirements of their operations to ensure sustainability. Most businesses tied their capital with inventories, thus, additional capital is needed to continue production and meet the needs of the clients.

Businesses are actually outsourcing the management of their account receivables when they embark into an accounts receivables financing. It allows them to focus on the salient management of their operations particularly on ensuring product quality and market development instead of getting tied with the collection of receivables.

Business plans and tax statements are not usually required in accounts receivable financing. It is a quick and unregulated financing unlike banks. However, availing this type of financing regularly will cost you factoring charges that might exceed the interests charged by banks on loans. Banks are better source of financing to establish your credit records. Thus, it is advised that once well established, companies should refer their financing needs to banks.


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