Accounts receivable financing, although considered a new comer in the world of business finance, has constantly and successfully gained popularity and acceptance among the different industries in the corporate world. The reason for such is because of the different benefits that it brings with it such as but not limited to the following:
Increase in funds and capital available for expenditures.
Early collection of cash which would otherwise be collectible at a later date.
Avoidance of increase in liabilities as cash will be taken out of the receivables.
Lesser expenses due to absence of compounded interest expense.
Produces no fear of losing corporate and personal assets when they are put up as collateral.
Whole Turnover – Also considered the traditional kind, this involves advancing the value of every invoice that you have. You basically sell the whole to the financing facility. This will involve a monthly fee and a lengthy contract. Companies that highly benefit from this are those with very long receivables. However, if your receivables can be collected effectively, promptly and you don’t mind waiting out on them then you may opt for the Spot or Selective type where you advance only as the need arises.
Selective or Spot – This is where only one invoice will be involved. You get to choose when to do it, how often and what specific receivable you will be using. You do not need to subject your entire sales ledger to the facility unless you want to. If so, the Whole Turnover type should suit you better.
Confidential – As the name suggests, this type can be arranged so that your customers and suppliers remain unaware that you are getting your capital by advancing against your sales invoices before their payments have been actually received.
Funding Limits – Here, the accounts receivable financing company protects itself by specifying that in the event that your customer fails to pay the amount due them, you will be required to buy the invoice back. This type can also be called With Recourse. In the event that you want to be risk free, you may opt to choose a Non Recourse service although technically this will cost you a little bit more.