Accounts receivable financing, although considered a newcomer in the world of trade finance, has steadily and successfully gained popularity and acceptance among different industries in the corporate world. The reason for this is due to the different benefits it brings, such as, among others, the following:
- Increased funds and capital available for expenses.
- Early collection of cash that would otherwise be collectible at a later date.
- Avoid increasing liabilities as cash will be taken out of accounts receivable.
- Less expenses due to the absence of compound interest expenses.
- There is no fear of losing corporate and personal assets when offered as collateral.
Total billed – Also considered traditional, it consists of advancing the value of each bill you have. Basically, it sells the entirety to the financing mechanism. This will involve a monthly fee and a long contract. The companies that benefit a lot from this are those with very long accounts receivable. However, if your accounts receivable can be collected effectively, quickly and you don’t mind waiting, then you can opt for the Spot or Selective type where you advance only when the need arises.
Selective or Spot – This is where only one invoice will be involved. You can choose when to do this, how often, and which specific accounts receivable to use. You do not need to submit your entire sales book to the installation unless you wish to do so. If so, the Full Turnover type should be more suitable for you.
Confidential – As the name implies, this type can be arranged so that your customers and suppliers do not know that you are getting their capital by advancing their sales invoices before their payments have actually been received.
Funding limits – Here, the accounts receivable financing company protects itself by specifying that in the event that their client does not pay the amount due, they will have to purchase the invoice again. This type can also be called Recourse. In case you want to be risk-free, you can choose to go for a non-recourse service, although this will technically cost you a bit more.
Accounts receivable financing has become one of the effective means of raising the funds you need. Each type will benefit you differently and will be adjusted to certain cases or circumstances. Do your research well and study which type will best suit your needs to get the most benefit from them.