Accounts Receivable Financing

Written by James Kitchens
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For businesses in need of quick cash, accounts receivable financing can be a good short term solution. In return for the loan you need, a finance company will take on your receivable invoices, which is money you are expecting from debtors. The loan you will get is based on your customer's credit, and not yours, so you can count on a loan such as this even if you are in bankruptcy or if your credit is not so good for some other reason.

Of course you will not get the full value of your accounts receivable in return for the loan. The whole point of such a transaction is that the finance company will be taking on the risk, at a price. The more current, or short term, your invoice is, the more money you will get for your invoices.

Variable Rates

Typically, financing institutions will give you different rates for 30 day, 60 day and 90 day invoices. The advantages of these often high-cost loans is that you'll get your cash in a very short space of time--typically hours, and that you don't need to provide any personal guarantees. Even if your customers don't pay up to the financing company, you won't be liable at all.

This can be a good option for a business that is struggling because lots of customers owe money and are slow paying up. It may be better to cut your losses and allow professionals to deal with the business of debt collecting. This way you'll have some more cash to save your business and can focus on building your operation instead of running after people who owe you money.


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