ACCOUNT RECEIVABLE USE IT FOR BUSINESS LEVERAGE

2007-04-17 04:46:40

( Insurance )



Definition

Account receivable involves billing of clients for purchasing of products or services delivered by traders. Companies’ balance sheets reflect account receivable as current assets which are amount owed by clients to the company. Large businesses use account receivable software to input their various account receivables.

Account Receivable as Collateral

Account receivable as collateral for loans is another funding option for businesses facing shortage of cash. Businesses that are short of cash since bulk of its capitals are in their account receivables can benefit from account receivable factoring where the former is put as collateral for loans.

Non-banking institutions commonly offer account receivable factoring. Small businesses with majority of capitals tied with their accounts receivables are usually the clients of these institutions. These institutions charge interest on the money they lend based on the amount of account receivable. Also, they take over the collection of the businesses’ account receivables.

Benefits of Account Receivable Factoring

Businesses benefit from accounts receivable factoring. Funds released from account receivable factoring within few days after processing of necessary papers. Business operators remain in control of their business even though they reassigned collection of account receivables to an outsider financer. Reassigning collection lift the burden of collection from the business consequently lessening costs.

Payment of funds lend through account receivable factoring comes itself from the amount of account receivables assigned to the financer, hence, businessmen do not make monthly payment for the funds they availed. Thus, it helps businessmen gain control over their cash flow situation since they do not need to raise funds to pay back the amount they get from account receivable financer.

Businesses can focus on increasing production and sale instead of worrying about slow paying clients and cash flow shortage. They can meet payment of employees’ salaries, taxes and marketing expenses.

Businesses need not worry anymore of late collections of account receivables. They can use their account receivables as leverage to access outside funds for their operations without dropping their clients.


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