Understanding Accounts Receivable Financing in an Easy Way
In the world of business, the information about loans doesn’t have to be complicated. Loans are simply a major part of most businesses because there will always come a time when working capital is needed to achieve a particular purpose. For example, a business might need to make some emergency renovations to their physical location but doesn’t want to take on a lot of risk from a traditional bank loan or a hard money loan. If a business needs a safe loan, it should consider Accounts Receivable Financing (AR Financing) to meet its needs. Keep reading to see how this kind of loan is made very simple.
Used When Businesses Need Fast Cash
When a business needs fast money, there are many options available. But if the business has accounts that will eventually be paid by its customers, AR Financing is the best route to take. This kind of financing is usually done quickly because of its amazing characteristics.
AR Financing Is Based on Outstanding Invoices
AR Financing is based solely on the outstanding invoices that the company has out at the moment they apply for the loan. Companies have customers and other businesses that owe them money for the services or products they’ve sold to them. The company has already sent them out an invoice but is still awaiting payment. So, the lender will look at all of these invoices.
Lenders Are Usually Happy to Give Out This Loan
As it turns out, lenders are usually happy to give out AR Financing because the outstanding invoices are usually solid indicators that the borrowing company will eventually have the money to pay the loan. Even though most lenders are generally aggressive when it comes to business loans, they’ll usually payout 100% of the outstanding invoices.
Lenders Make Money Each Week Off This Loan
However, the lender has to make a return on their investment. So, they’ll usually take a percentage each week that goes by and they don’t get paid.
Borrowers Should Seek Payments From Clients Each Week
This means that the company should aggressively seek out payments from their customers. This might mean that they set up a payment plan with them or set a goal to call and collect payments each week from their clients.
This is a simple way to understand AR Financing. It should be noted that this could be a very viable option for most businesses to meet their needs and continue into a prosperous future.