Accounts Receivable Financing
What Is Accounts Receivable Financing ?
Accounts receivable financing is a financial transaction in which a business sells its invoices, or accounts receivable, to a lender or third party in order to receive cash from the third party immediately as opposed to waiting, for instance, six months for a customer to pay for the business's goods. For instance, if the business has an accounts receivable in the amount of $100,000 that is due in six months and the business does not want to wait six months for payment, the lender or third party will offer the business, for instance, $97,000 immediately in exchange for waiting six months to collect the full amount of $100,000 from the business's customer. The advantage for the business is that it can immediately produce goods, pay rent and salaries and keep the business going instead of waiting to be paid while the lender or third party receives the full amount of the accounts receivable after six months. Accounts receivable financing is also known as Factoring and the third party or accounts receivable lender is known as a Factor.
Accounts Receivable Financing In Relation To Loan Brokering
A loan broker is an intermediary between a borrower and a lender. The borrower engages a broker to submit their financial needs to a lender or third party who is prepared to accept the accounts receivable or invoices of the borrower. The broker receives a fee for arranging the loan between the borrower and the lender.
A broker that deals in accounts receivable can repeat the process as many times as the client or borrower needs this type of financial service. The advantage to the broker in this type of loan arrangement is to look forward to repeat business from the borrower.
Advantages Of Accounts Receivable To The Borrower
- they can outsource the management of bill collecting to the lender or third party, saving them time from having to collect the money
- no personal collateral is required so you don't have to put up your house, car, inventory, or place of business up as collateral for a loan and you retain ownership of your business
- they receive immediate working capital to continue operating and growing their business
- often a business's working capital is tied up in its inventory; with this type of loan you can free up your capital
- this type of loan is ideal for seasonal businesses or to hastily acquire money for other business opportunities
- this type of loan likely saves you from having to submit a business plan or tax returns to a bank in order to get a loan and acquire fast cash without having to go through many hurdles
With our high-income loan broker business program, we can provide you with step-by-step, easy-to-follow instructions on how to arrange an accounts receivable loan for your client and provide you with a list of lenders.
In addition, our loan broker program will show you how to arrange many other types of loans.
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