Account Receivables Financing

A Comprehensive Guide to Factoring Accounts Receivables

Account receivable financing is a type of transaction in which a business sells its invoices (account receivables), to an invoice factoring company (a third party commercial finance company). Numerous businesses practice this type of financing so that they can receive cash quickly without having to pay any debts and fulfill the contingent need of cash within the enterprise. The age and volume of the account receivables have an effect on the amount of money a company will receive. The older the receivables, the less the amount you get.

Benefits of Account Receivable Financing

Factoring account receivables maximize cash flow and minimize credit risk within the organization. Invoice factoring makes working capital available to all your business needs. The best part is you no longer have to wait for your clients to pay in order to sustain your important business operations. The factoring accounts receivables benefits your business with expedient cash flow, based on your current invoice assets. Mostly businesses have system of invoice payment, which often hijack your company’s cash flow. This is when factoring company can help you free your constraints by converting your invoices into quick cash flow.

Types of Account Receivables Financing

There are two types of receivable financing. Read on to discover the differences.

Invoice Discounting- It is a type of asset based financing, which enables businesses to get access to cash, which was otherwise trapped, in the form of an invoice.

Factoring- This type of receivable financing is usually used by the companies that are smaller as compared to invoiced discounting. The major difference between factoring and invoice discounting is that the factoring company outsources its credit control function and the facility is disclosed. Factoring is the trade of receivables, whereas invoice discounting is borrowing where the invoices. Receivables are used as collateral.

Factoring accounts receivables makes an ideal financing choice when it comes to fast cash flow and minimum risk while maintaining essential business operations. Make sure that the company you hire is known for quick turnaround of application and is known to provide advance rates.
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