When people talk about accounts receivable financing, a lot of questions tend to arise. After all, accounts receivable financing is an extremely complicated concept, which many people in the world of business don’t quite understand. However, it can be an extremely useful tool for any business having issues with its cash flow. Read on to find out more about accounts receivable financing, and see exactly what it can do to help your business in a crisis.
What Exactly Is Accounts Receivable Financing?
Most companies will have “accounts receivable” on their books. This effectively means payments that you still have outstanding, whether this is fees from clients or refunds from suppliers that haven’t come in yet. Depending on the type of business you run, this may include car financing, which can total tens of thousands of dollars in future payments. Accounts receivable financing is based on using the future income of your company as leverage when looking for a business loan, giving the bank a level of security and assurance that the money will be repaid.
Is Accounts Receivable Financing Right For My Business?
If you’re a company that makes use of long-term financing options for your customers, then accounts receivable financing will be ideal for you. It’s best used in a situation where your outgoings are taking place right before you get any of the outstanding accounts in to cover them. You’d otherwise have a funding gap for a few days, and an emergency taking place in this period could be seriously damaging for your company. By taking out accounts receivable financing, you can remove funding gaps from your business, making your cash flow much healthier.
What Should I Keep An Eye Out For When Getting Accounts Receivable Financing?
There are a few features of accounts receivable financing that you need to keep an eye out for. These can often be buried in the terms and conditions, and without paying enough attention, you may find yourself in a significant amount of trouble in the long run. These include, but are not limited to:
– Making sure that you won’t be overrun by excessive interest payments if you fail to pay the financial institution back in time.
– Avoiding any “minimum term” features, which lock you into a loan for a long time to boost interest payments to the bank.
– Keeping your assets safe in case you take a little longer than you expected to pay back your debts.
By making sure that any contract or agreement is suitable for your company, you can keep your business in the best financial shape possible with extremely minimal risks.