An Overview of Receivables Finance
If you are planning on making a foray into importation, one of the key areas that you need to pay attention to before you start would be the asset financing arrangements that you can use.
One such asset financing arrangement that you can consider is accounts receivables finance. In accounts receivable financing, a company uses its outstanding invoices or receivables as a form of collateral for the financing agreement. In this type of financing arrangement, a third party known as a factoring company will give your business the discounted value of the unpaid invoice.
Usually, factoring companies provide businesses with somewhere between 70 and 90 percent of the value of the invoice. The factoring company will then shoulder the task of collecting the money owed to your business and will pay you the remainder of the amount after the factoring fee has been subtracted.
How do factoring companies value accounts receivables? Financing companies will take a few critical factors into account when they are determining how much money they will offer a business for accounts receivables. Generally, the accounts receivables of larger and more established firms have a higher value compared to the accounts receivables of smaller firms. Also, new invoices are considered more valuable than older invoices. Broadly speaking, factoring companies put more value on accounts receivables that are easier for them to collect.
If you are planning on getting into importation, why should you consider working together with factoring companies?
Accounts receivable financing offers a few distinct advantages. For one, companies can gain immediate access to necessary funding while forgoing some of the hassles associated with other financing channels. Accounts receivable financing also allows a company to focus its efforts on more crucial parts of its operations instead of allocating resources toward bill collection. Additionally, many factoring companies offer services like the generation of financial reports and due diligence on new clients.
But despite these advantages, there are a few criticisms hurled against accounts receivable financing. Some say that working with factoring companies can cost a business more compared with working with traditional financial institutions. There is also the false belief that accounts receivable financing is only for companies with poor credit or suffering from financial woes. However, most of these accusations are unfounded.
Should you opt for accounts receivable financing? Before making this decision, consider all available options, weigh the pros and cons, and make the necessary research before making a final choice.
About the Author
Sarah Miller is a business consultant by profession and a content creator, writer and blogger by passion. Having been exposed to the different aspects and faces of businesses, she frequently does research on useful information regarding the different methods and techniques to further improve business marketing, sales, performance and shares her passion of business management through blog/content writing. She visits sites like http://www.business.hsbc.com.qa
Submitted on: 2016-10-25 06:31:48