Are you familiar with the accounts receivable process?
(So You Can Avoid Any Major Problems!)
If there were some serious considerations for you to take into account about the accounts receivable process, you’d want to be made aware of them before hand, would you not? Agreed.
And of course nobody has to tell you how challenging it is, (recession or not withstanding) to obtain credit, for your cash starved small business,right?
Let’s face it, in today’s precarious business environment, practically anything can be a slight impediment to your small or mid sized business having limited access to, (or just straight out) being denied available access to credit.
Which puts any future expansion hopes on hold, or squashes them altogether.Correct?
How The Accounts Receivable Process Affects Your Small Or Mid Sized Business…
Accounts Receivables (called A/R financing) for short, often can be the sole line to much needed cash, for new start ups, small business and or service providers, that for any number of reasons, are not yet considered credit worthy. Even though they be financially stable.
Whenever you face that inevitable temporary cash flow shortage, an extremely viable option (after careful consideration of course), may in fact be “invoice factoring (aka) accounts receivable financing.
Just understand that in essence what you’re actually doing is trading in your invoices, (future payments) from your customers, and receiving cash now, and the factoring company will receive the future payments.
Minus a few customary standard fees (of course), but that’s the basic concept. Of course, you realize it’s not quite that straight forward, the accounts receivable process is just being shortened here, in order to get to the main point.
Any and all future payments on the invoices, go directly to the “factoring company“, (the one’s making the loan) in order to repay the cash advance (temporary) loan.
Because let’s face it, not all of your business customers (for whatever reasons) will not be able to pay their invoices on time.
Which of course (dramatically affects) your ability to meet weekly and monthly payroll, taxes, leases, mortgages, bridge loans and to purchase future inventory etc.Correct?
So discount invoice factoring, may well be a viable option to at least consider.
Three Things About The Accounts Receivable Process You Probably Want To Know Before You Dive Head long Into It!
This way you can at least, have a better idea, of how the process actually works, the good, the bad and the ugly.
1.) First of all, (typically) so don’t quote this, but normally the factoring company will deduct their standard fee, (which BTW) will vary from company to company. But they’ll normally deduct it off the final balance owed by the company that originally borrowed the money.
2.) Another thing that may not be totally clear initially, the actual amount of money that gets loaned, by the factoring company, (typically) is not based on the borrowing company’s current credit history and or current credit score.
Instead, the factoring company will base their final decision on the current credit worthiness of the borrowing company’s customers!
Because remember, the borrowing company’s ability to repay this short term cash advance loan, is based on how reliable the customers, whose invoices they posses, can pay their bills.
Just Be Extremely Mindful Because Sometimes the Entire Accounts Receivable Process Can Be Or Quickly Become A Doubled Sword!
3.) And finally… my friend, it’s always a good idea to have an available line (of both) short and long term credit, before you actually need it.
Typically, you can have factoring cash in your business account in as little as a few short days. Obviously a business credit card is faster, but the fees are typically higher and the terms are not as flexible!
In any event, there you have it. Three things you probably want to know (beforehand) about the accounts receivable process.
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Your Company Doesn’t Have To Be Cash Strapped! (And You Don’t Have To Constantly Stress Out Over It!)
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