Because it can be so difficult for many businesses to obtain financing from conventional sources, alternative lending has become increasingly popular. Alternative financing may be implemented in a variety of ways, depending on the needs and circumstances of a particular business. One way to get the funding you require could be accounts receivable financing. The following information may help you to determine whether this option is a good one for your business.
Exploring the Fundamentals
If you are unfamiliar with the term, accounts receivable financing is a common alternative lending strategy. Also known as factoring, this practice is a fairly uncomplicated process. A factoring company (referred to as a factor) purchases the accounts receivable that a business is owed by its customers. The factor pays the business a high percentage of the outstanding invoices upon purchasing them.
Once the accounts receivable have been paid, the factor pays the remaining percentage (less a factoring fee) owed to the business. The fee that a factoring company charges a business generally varies according to the quality of the accounts receivable being purchased. The quality is typically determined by the age of the outstanding invoices, as well as other details that may have an impact on the likelihood of their being paid.
What You Should Know
When you are entering into an agreement of this kind, be sure to establish a few details first. Find out whether the financing has a prime rate and how much that rate is. Also, be sure you understand the length of the agreement, as well as the length of time that the purchases are payable.
Benefits of Accounts Receivable Financing
One of the top advantages of factoring is that you can get the cash flow you need very quickly. Additionally, the requirements to qualify for such financing are less rigid than for traditional loans. Because the invoices themselves serve as a sort of collateral, you don’t need to provide actual collateral for accounts receivable financing.
If your business requires funding, accounts receivable financing could be a solution. Contact Purevue Capital for more information today.
