Accounts Receivable: Going Beyond Invoice Factoring

November 9, 2017 by CNH Finance, LP in category “Financing”

Accounts receivable are much more than a tally of sales and revenue owed by customers. Accounts receivable can be used as a powerful tool to help finance your business. While many business owners are drawn to the “quick fix” offered through factoring services, accounts receivable can be used more efficiently, and for positive ling-term results.

Invoice Factoring Is Not All It’s Cracked Up To Be

Invoice factoring is marketed in two ways to business owners. First, invoice factoring is offered as a fast and easy way to leverage accounts receivable for working capital to help correct cash flow problems. Second, invoice factoring is used to prevent issues with cash flow. In both cases, the process is the same. Invoices are exchanged for cash, which is delivered within 48 hours. Overtly, this does not seem like a bad deal, until you dig a little deeper. Invoice factoring companies take a minimum of 20 percent off the value of accounts receivable as a charge for their services. A credit check is run on every customer associated with the invoices submitted. If a customer’s credit rating is below a certain score, a higher fee is charged, because that invoice is more of a risk than others. In short, businesses can cheat themselves out of revenue just for the convenience of getting access to fast cash.

Invoice Factoring Is Finite

Even if business owners dismiss the large percentage taken off the top from invoice factoring services, the amount of capital offered in exchange is finite. This still leaves businesses at risk for experiencing problems with cash flow, as the amount of capital coming in is still based on the total revenue, less a considerable percentage.

Asset based financing Uses Receivables

Accounts receivable can be used to create a renewable business line of credit without experiencing a loss in revenue. Asset based financing uses receivables and other fixed assets to provide a revolving line of credit, instead of taking a large percentage of the total revenue for a small amount of working capital The revolving line of credit is often used by entrepreneurs to perpetuate business growth, which in turn increases the limit on the line of credit. Increased accounts receivable means more financing, instead of a larger cut for factoring services.

At CNH Finance, our team will work with you to provide a revolving line of credit based on the value of your accounts receivable. Contact our offices today to learn more.

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