Did you know that 45% of businesses close their doors during their first five years of being in business? If you are looking for ways to keep your doors open then you might want to consider accounts receivable financing.
Keep reading to learn what it is and the ins and outs of this type of financing.
What Is Accounts Receivable Financing?
This is a type of financing arrangement where a company receives financing capital that is related to a certain piece of its account receivables. The financing agreements themselves can be structured in different ways. The most common basis for this type of financing is as a loan or as an asset sale.
Asset Based Lending
One of the primary types of receivables finance is asset-based lending (ABL). This type of finance is also known as traditional commercial lending or as a line of credit. This type of lending comes with high fees for the most part.
Companies usually commit most of their receivables to the program and then have limited flexibility when it comes to the receivables that are committed.
Selective Receivables Finance
This option allows a business to select the receivables they want in advance for early payment. It also allows a company to secure payment in advance for each receivable as well.
With selective receivables finance, the rates are usually lower than the other finance options. Because of the program structure, this finance method does not count as debt. The selective receivables finances stay off the balance sheet which makes it so that it does not impact outstanding lines of credit or the debt ratios.
Traditional Factoring
With this option, the business sells its accounts receivable to a funder. The initial payment in this case is less than the full amount of the receivable. The pro is that a business has the option of choosing which receivables they want to trade.
Keep in mind that the funder fees might be higher than usual and the credit lines will more than likely be smaller. In this scenario, the factored receivables are seen as outstanding debt on the balance sheets for the company.
Pros
One of the benefits of accounts receivable financing is that you still retain ownership of your business. You do not have to give any part of your business ownership in order to receive financing. Another pro is that there is no need to put up any collateral.
Receiving financing help from Yourfundingtree.com will ensure that you have a reputable business in your corner.
Feeling Like an Accounts Receivables Pro?
Now that you know more about what accounts receivable financing is and the different types, you can make an informed decision whether you want this type of financing or not. If you choose to move forward with this type of financing then you can decide which type is best for you and your needs.
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