For small and medium businesses or those which are in their growing stages, to obtain finances is a very tough task. Bank loans are not easily provided to such organizations as they take into consideration factors like number of years in business, assets and other factors. Moreover getting a loan is a time consuming process. In situations, where organizations have customers who pay in a period of 30 to 60 days or more, managing funds becomes difficult. They may miss out on an opportunity to attain new business merely due to lack of funds. This in turn leads to financial losses, as well as further opportunities to grow.
Additionally, regular expenses like rents, wages etc., which are unavoidable, need to be taken care of. So money gets help up because of the slow paying customers. In such a scenario, can a business deliver the larger orders of larger customers and provide them larger credits for 60-90 days? The solution for this lies in accounts receivable financing. Accounts receivable financing provides you with immediate cash against collateral of your accounts receivables. The only criterion here is that your customers must be credit worthy. Some companies would even provide you with finance even if you do not have hard collateral but have good invoices, with good profit margins and a great business plan.
Accounts receivable finance allows a great way to increase profits. Initially you may feel what is left for you if you are earning 5% profits and are paying around 4% to the finance company? However, because of finances being available at the right time, you will not miss an opportunity to get bigger contracts. Improved business, leads to higher profit margins and thus an overall increase in profits. Cost of production is reduced in case of higher volumes, though there may be slight rise in certain fixed costs like electricity bills, wages and insurance, which may very slightly affect overall profits.
Moreover as your business grows you have more invoices which you can use as collateral to avail loans from such accounts receivable financing companies. When you take a loan from the bank it is a one time thing, as compared to the accounts receivable financing where you have continuous loans of amounts as and when you require them. At the end of the year you have no debt left.
When you use the accounts receivable financing you assume that the customer would take the stipulated period of 30-60 days to pay the bill. However if the customer pays later than that, then when you are applying for finance you can see to it that the invoice is 30 days old or so, so that you pay fees for 30 days only. Another thing you may do is use the faster paying customers first for your urgent cash needs. As the responsibility of collecting the invoices is upon you, it often leads to bringing about more discipline in business management. With the financing companies guidance you may also put your finances in order and choose those customers who have good credit ratings or get government contracts.
Accounts receivable financing thus helps increase profits which is a major factor in the growth of any business.
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| Posted: 26-04-2008 | Comments: 
