Harnessing Accounts Receivable To Strengthen Cash Flow
There are a few different ways that you can leverage the value of your company’s accounts receivable to improve your cash position. Here are some important things that you need to know to get started using this resource.
Getting Financing With Your Accounts Receivable
When you assign an interest in your customers’ unpaid invoices, an accounts receivable financing company will give you a percentage value of the invoices’ face value in the form of a check or account transfer. The percentage varies between financing providers, and a few factors that bear on what they will pay you right away might include the value of the invoices, when they are due, and your customers’ creditworthiness.
Be aware that you needn’t have an immaculate credit history in order to avail yourself of these types of financing opportunities. Your ability to pay creditors consistently isn’t reflective of your ability to collect unpaid invoices in your capacity as a creditor, so this funding option is an excellent route for companies that have had problems maintaining creditworthiness in the past.
A financing company may assume direct responsibility for collecting receivables. In these instances, they will send notification to your customers. In other financing arrangements, businesses that assign interests in their accounts receivable to a third-party accounts receivable financing company will retain responsibility for collections.
Fees
After customers have satisfied their obligation to your business by tendering payment to your accounts receivable department or a financing company that has assumed responsibility for collections, you can receive the remainder of the balance less the fees that a financing company charges you. These fees are not the same among all companies that handle transactions involving accounts receivable, so be sure to review the terms of your financing agreement carefully to understand exactly how much you will have to pay.
Advantages
Without a doubt, one of the biggest benefits of accounts receivable financing is that it gives you more flexibility and breathing room with your budget. Rather than having to wait to receive payment to begin utilizing the revenue that you have generated, you can have access to it without delay.
Business owners who have to contend with ups and downs in their revenue cycle can have difficulty managing their ongoing expenses and planning development. When you need a quick infusion of capital to support your operations, be wary about overextending yourself financially. Rather than racking up high-interest charges or encumbering key operational assets by using them as collateral, consider using accounts receivable to obtain funding.
