The Underlying Benefits of Accounts Receivable Financing

Seeking funding for your business often reveals many different options. This can make the choice more difficult than it may have already been. Rest assured, there is a viable option out there. However, recognizing it can involve important research to determine all the details. Knowing the ins and outs of a financing plan makes it easy to choose the right fit for a company. Once a plan is chosen, having this knowledge will also make it easier to navigate. Every method has its pros and cons that should be recognized and dealt with. One in particular is the accounts receivable financing method which, despite its growing popularity and multiple benefits, still has some aspects a business should consider before making the choice. The process itself is fairly simple. A company’s accounts receivable, also known as the invoices from sales made, are sold to a factoring company at a lower rate. The factor will then be responsible for collecting the full price from their client’s customer. After taking a fee, the leftover balance from the discount is then paid to the client. One of the biggest pros of this process is that a business can receive funding quickly, often within five days or even 24 hours. This saves time, and collecting from customers becomes one less thing for the company to worry about. Since the ability to pay rests on the customer, the business has no credit checks to pass. This makes funding more accessible to those who may have no other options. Gaining extra funds that are not tied up in other uses allows the business to expand in whatever way it desires, and create new opportunities. It also allows the business owner to retain control of their company without relying too heavily on outside funding. However, no method is without its cons. One in particular can be the cost. Though the monthly fee may be small, costs add up over time and can grow as high as 20 percent or more. As a general rule, factoring receivables costs more than a regular bank loan. Having unreliable clients that may not pay on time is another factor that can increase the price. Due to the rapid growth occurring in this area of finance, there are many different options from which to choose, and some can be more harmful than others. This makes doing your research even more essential, to ensure your business is not hurt by bad practices. Going with a well established, trusted firm is often your best bet. Just like any other option, factoring receivables has its good and its bad aspects. The choice all comes down to what is best for the business at hand, and knowing the details makes that choice all the more easy. By informing yourself and your business, it is possible to achieve the success you dream of. The fast returns and promise of extra funds is often worth the cost and potential uncertainty, for those companies that really want to shine.