Accounts Receivable Financing – How to Use Other People’s Money to Finance your Growth

Date:

Share post:

Many people grew up reading Superman comics for fun. Ask yourself, would it be wonderful (think of this as a metaphor) if your B2B business was “faster than a speeding bullet, more powerful than a locomotive and able to leap tall buildings in a single bound?” Would your business benefit if you could always have the cash from your invoices when you needed it? Would your business benefit if cash available for growth was virtually unlimited? Would your business benefit if you could “leap over” your cash flow problems to provide more products or services to you customers?
In general, the larger your customers are, the slower they pay your invoices. It’s like the old joke, Question: “Where does a gorilla sit?” Answer: “Anywhere it wants to.” For example, a small sound engineering company was engaged to provide sound effects for a major motion picture production studio. When asked to comment on their experience working with such a prestigious client, the owner said: “fear the ears”.

It simply is a universal trend that your largest customers may be the slowest to pay you. Do you have to wait 60 to 90 days to be paid by your largest commercial or government customers? If so, accounts receivable financing may be the answer to your cash flow problems.

There are several advantages to accounts receivable financing compared to regular bank financing. Your current credit score, or your company’s credit, is not an issue because the financing entity relies on the creditworthiness of your customer. In fact, some companies that are in the “Special Assets” division of a bank (which is a euphemism for being asked to leave the Bank” are prime candidates for accounts receivable financing. At another extreme, some companies that are in a Chapter 11 Bankruptcy proceeding, (called Debtor’s in Possession) can obtain accounts receivable financing with the express permission of the Bankruptcy court.

Accounts receivable financing will grow in terms of your credit limit as your company grows. So if you are with the right commercial finance company, your growth is potentially unlimited. Compare this with regular bank financing which looks at your current situation and your past two years operating history.

Many entrepreneurs are optimistic, energetic and very positive in their predictions about their future. Bank analysts are trained to look at worst case scenarios. Every Bank has to undergo a periodic “Safety and Soundness Examination”. Part of this process is a team of federal regulators second guessing every loan decision where the bank has granted credit.

There’s a lot of truth to the old adage that bank’s will only lend money to people who don’t need it. Banks do not want to suffer the penalties that may be imposed by the federal regulators if they found to have made a “bad” loan. So the standards and perspectives of Banks and Commercial Finance Companies are very different.

Accounts receivable financing can provide you with the cash you need within a day or two of your invoicing your customer. Some commercial finance companies have very sophisticated internet based submission systems. You submit the invoice electronically; it is reviewed and verified; and the agreed upon cash advance is wired to you the very same day. Other companies use a paper fax based system but the results are very similar.

Accounts receivable financing terminology can be confusing. The following words have essentially the same meaning: accounts receivable financing, factoring, receivables factoring, factor invoices, discount factoring, asset based lending (usually associated with very large transactions).
The bottom line: if your customers are paying you too slowly, and this is limiting your business growth potential or profits, you should consider accounts receivable financing.

1,000FansLike
1,000FollowersFollow
1,000FollowersFollow
spot_img

Related articles

How to Write a Business Plan That Will Help You Achieve Your Goals: The Ultimate Guide

Ah, the business plan – the backbone of every successful venture! It’s that magic potion that can pave...

Modern Business Ideas for the Eco-Conscious Entrepreneur: Green Is the New Gold

Gone are the days when businesses cared solely about profit margins. Today, eco-consciousness isn't just a buzzword –...

Insolvency Advice

What is insolvency? Insolvency refers to when either an individual or business are no longer capable of meeting their...

A small business guide to digital marketing

42% of small-scale entrepreneurs confess that they do not utilize social media channels as a marketing strategy to...

Top Networking Tips For Consultants

Professional networking can be invaluable in any industry. For consultants, networking offers the ideal platform to promote their...

Ways to Have a Strong Legal Stance After a Trucking Accident

You never saw it coming. One moment, you were simply going about your day, and the next, your...

Business Management Tips to Aid Your Company’s Growth

Business Management Tips to Aid Your Company's Growth Business Management Tips: Business management is a complex concept that encompasses...

Here are 5 tips to recognize a meaningful business opportunity when you see one

You've discovered a remarkable market inefficiency It is no surprise that solving a meaningful problem leads to the best...

Five Tips to Recognize a Meaningful Business Opportunity when You See One

You have discovered a notable market inefficiency It's no surprise that the best ideas are generated when there is...

Here are 8 reasons business cards still matter.

Ease Of Giving Contact Details One reason business cards still matter in use is the ease with which they...

Are businesses still using business cards?

Are businesses still using business cards? Are you worried about your small Business Card? Customers trust businesses only after...

What’s the business?

What exactly is business? What exactly is business? It's a procedure that produces, sells and distributes products and...
error: Content is protected !!