How AR Financing Makes Your Business More Competitive….

by Stephen Perl invoice factoring company

In today’s competitive market, a business has to maintain its daily expenditure, seek new means of expansion, and at the same time, give a considerable time of credit period to its customers, to avoid being swallowed whole by the sharks of the market. Small businesses, in such cases, face cash crunch. Moreover, financing through bank loans becomes a tedious and lengthy process, which doesn’t provide a solution when speed is the need of the hour.

Here, accounts receivable financing has played a major role in supporting B2B businesses, and sometimes, the suitable B2C ones, in generating a cash flow for their business or embarking on an expansion plan or simply using it for the working capital of the company. Oftentimes, accounts receivable financing is used interchangeably with factoring. However, the two are, not majorly, albeit different from each other.

In accounts receivable financing, you can use your accounts receivable as collateral with us, 1^st PMF Bancorp; and we would provide a loan of upto 85% of the value of the accounts receivable to you. We hold such invoice for the credit period so granted. Thereafter, on receipt of the entire amount against such accounts receivable, we refund the balance to you, after deduction of administrative fees.

Factoring is a similar arrangement, but instead of giving your accounts receivable as collateral, you end up selling the same to the factoring company.

What’s the difference, you ask? Simply put, accounts receivable financing is quite easily available and at a lower cost, because the financing company will not take responsibility of bad debt. You would own the accounts receivable invoice, after raising the finance, and would have used it merely as a collateral. The reason factoring is more expensive is because you essentially sell your accounts receivable to the factoring company, and the responsibility to recover the money is shifted on to the factoring company.

An AR financing company would fund a percentage, maximum up to 85%, of the gross value of invoices that you choose to provide as collateral. The percentage depends on a number of factors – total value of invoices, creditworthiness of the customer, prior credit history, and the likes. Simply put, higher the risk for the AR financing company, lower the amount of loan given.

Benefits of AR financing are numerous, the most obvious one being immediate generation of cash flow. The turnaround time and red-tapism is minimal, as compared to traditional financing. Moreover, the default risk is shifted to a certain extent to the financing company, and the immediate recovery is not a cause of worry for you.

In a nutshell, AR financing is an easy and convenient way of generating immediate cash for your business, no matter what the requirement is.