Bernard Linney & Accounts Receivable Financing News

Companies today must be willing to work with multiple financing options. They must offset the issues of delayed customer payments, and reduce the costs of conventional bank and credit union financing, with unconventional financing methods. However, what else is there besides working with banks and credit unions? More importantly, what can businesses do to reduce the high costs of business financing, when so many customers are taking longer and longer to pay their invoices? To answer this question, think of the benefits of accounts receivable financing. What is account receivable financing and how can it help today’s businesses?

When thinking of a company’s assets, what’s the first thought that comes to mind? Well, one might think of the company’s inventory, its investment in its equipment and machinery and its real-estate holdings. However, another important asset includes the company’s unpaid customer invoices or its receivables. A company’s receivables are important assets and the ability to borrow from these assets forms the basis of receivable financing. In essence, receivable financing allows companies to use the liquidity within their assets in order to borrow from a finance company. So what’s included in receivables financing?

The two most common receivable financing vehicles include invoice factoring and purchase order financing. With invoice factoring, a finance company advances capital based on the age of the invoice and the customer’s ability to pay. The company can then use the money to finance their own operations. Once their customer pays the invoice, the finance company reimburses the company the difference and deducts a fee for the transaction. With purchase order financing, the financing company advances the company funds based on the value of their purchase orders or contracts on hand. The company then uses the funds to run their operations or to finance the purchase of the raw materials and parts to fulfill the customer’s order. Again, once the customer pays the invoice, the company is reimbursed the difference between what was originally advanced and what was collected from the customer.

Both purchase order financing and invoice factoring allow companies to use their current assets as a form of collateral. They are advanced the funds they need to run their business or to finance their inventory. They can forego the hassle of waiting for customers to pay their invoices and instead move forward with reducing their own expenses and financing their business.