Accounts Receivables Loans: Keeping Cashflow Healthy
West Asset Management and similar companies offer creative solutions to any business that needs to raise an account receivables loan. When an account payable payment is overdue from a customer and cashflow becomes tight, being able to raise finance on the strength of that overdue debt can mean the difference between survival and bankruptcy for a business. In an ideal world all debtors would pay their bills on time, but as any business person will tell you, our world is far from ideal. To maintain positive cashflow it is essential that every company, whatever its size, has a detailed credit control policy which is applied without exception to all debtors. Word soon gets around that bills need to be paid on time to a particular supplier or further action will swiftly ensue.
Being able to raise account receivable loans is particularly vital to companies that sell low volume but high ticket price items. They only need one overdue accounts payable payment and their cashflow forecast and budget flies out the window, never to be seen again. The financing available can take a number of different forms.Frequently the sum of the accounts payables outstanding on the balance sheet can be offered as security against a loan. The advantage of this is that, as the loan is secured, the interest rates tend to be lower. The disadvantage is that the company incurs a liability that must appear on the balance sheet. This can be critical in the eyes of stakeholders and sometimes is not a popular move. Factoring is the traditional form of accounts receivables loans, although technically it isn't really a loan. The finance company will offer account receivable financing by purchasing the outstanding invoices at a discounted rate. The supplier perhaps receives between 80 and 95% of the total value. The advantage of this type of financing is that all accounts payable payments are then due to the factoring company. They will make the collections thereby relieving the supplying company of the time consuming business of debt collection. Account Receivables loans provide a quick form of company financing that is probably the simplest way of securing the cashflow of a business although it does add additional debtFor the debtors, the difference is that they may find themselves making their accounts payable payments to a finance company as opposed to the original supplying company. If this is the nature and structure of the financing deal arranged it is essential (and sometimes a legal requirement) that debtors are kept fully notified about the changes in the status of their debt. There is no doubt that companies are increasingly turning to creative ways of financing their day to day operations and different forms of receivables financing are becoming more popular. As accounts receivables loans are secured by debtors, this is a form of financing that is very suitable for start up businesses that often have difficulty in raising funds by other means. |