Account receivable financing, also known as business factoring, is a particular type of asset financing option wherein a company uses its account receivables as a kind of collateral which can be effectively exchanged for cash. Account receivable financing is considered by many as the best financing solution for any business, regardless of its type and size.
Perks Offered By Accounts Receivable Financing
• It can help grow your business. Factoring will increase your company’s working capital and would enable you to expand your business operations. And as you get more customers or clients, your business will grow, and this will also improve your factoring account receivable finances. As such, a beneficial circle of cash, customers, and growth would be created – something that all businesses want to experience or attain.
• It enables you to increase the capital of your business without incurring more debts. If you opt for accounts receivable financing, you are not taking out a business loan. In fact, you will be using your company’s biggest asset, your invoices and accounts receivables, to add working capital to your business. In addition, this financing option does not come with interest rates, fees, closing costs, and other hidden charges.
• You can be eligible for this financing solution even if your business even has a low credit score. Business loans and credit cards depend greatly on your company’s credit score. Business factoring, on the other hand, is based on the financial strength and stability of your customers rather than your own personal or your company’s credit score. This is because establishments that provide this financing option are more concerned about the credit reputation and credit worthiness of your customers more than yours. This is due to the fact that it is your customer who has to pay ultimately to the factoring company.
• It allows you to get quick cash for your business within 24 hours. Lastly, with account receivables factoring, you can receive cash the same day instead of waiting for 30, 60, or 90 days for your invoice to be paid. In general, as soon as you send your invoices or accounts receivable to the factoring company, they will immediately verify the invoices. If you have a list of solid of customers or clients, the financing company will deposit anywhere between 70 and 90% of the face value of the invoice directly into your bank account.
About the Author:
Geraldine Black is a business financing advisor. He recommends reading more about account receivable financing on HSBC UAE’s website.