Cash Generated From Collection Of Accounts Receivalbles Cash Flow Statement Accounts Receivable Financing – How to Use Other People’s Money to Finance your Growth

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Accounts Receivable Financing – How to Use Other People’s Money to Finance your Growth

Many people grew up reading Superman comics for fun. Ask yourself, would it be wonderful (think of it as a metaphor) if your B2B business was “faster than a speeding bullet, stronger than a locomotive, and could leap tall buildings in one bound?” Would your business benefit from being able to always have cash in your accounts when you need it? Would your business benefit from virtually unlimited cash available for growth? Would your business benefit from being able to “skip” cash flow issues and offer more products or services to your customers?

In general, the larger your customers are, the slower they pay your bills. As in the old joke, the question: “Where does the gorilla sit?” Answer: “Where he wants.” For example, a small sound engineering company was hired to provide sound effects for a major film production studio. When asked how they comment on their experience working with such a prestigious client, the owner said: “scare for the ears”.

It’s simply a universal trend that your biggest customers are the slowest to pay you. Do you have to wait 60 to 90 days to get paid by your largest commercial or government customers? If so, accounts receivable financing may be the answer to your cash flow problems.

Receivables financing has several advantages over conventional bank financing. Your current credit score or your company’s creditworthiness is not an issue because the financial entity relies on your customer’s creditworthiness. In fact, some companies that are in the bank’s “special assets” department (which is a euphemism for being asked to leave the bank) are prime candidates for receivables financing. At the other extreme, some companies that are in the 11th Bankruptcy process (called Debtor in Possession) can obtain debt financing with the express permission of the bankruptcy court.

As your business grows, receivables financing will increase according to your credit limit. So if you’re in the right commercial finance business, your growth is potentially limitless. Compare this to conventional bank financing, which takes into account your current position and business history over the past two years.

Many entrepreneurs are optimistic, energetic and very positive in their predictions about their future. Bank analysts are trained to review worst-case scenarios. Every bank is required to carry out regular “safety and soundness checks”. Part of that process is a group of federal regulators second-guessing every loan decision a bank makes.

There is quite a bit of truth in the old adage that banks will only lend money to people who don’t need it. Banks don’t want to suffer the penalties that federal regulators can impose if they are found to have made a “bad” loan. Thus, the standards and perspectives of banks and commercial finance companies are very different.

Accounts receivable financing can get you the money you need within a day or two of issuing an invoice to a customer. Some commercial finance companies have very sophisticated internet submission systems. Submit the invoice electronically; is inspected and verified; and the agreed cash advance will be transferred to you on the same day. Other companies use a system based on paper fax, but the results are very similar.

Receivables financing terminology can be confusing. The following words have essentially the same meaning: receivables financing, factoring, receivables factoring, invoice factoring, discount factoring, asset-based lending (usually associated with very large transactions).

Bottom line: If your customers are paying you too slowly and this is limiting your business growth or profit potential, you should consider accounts receivable financing.

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