Understanding the Nature of Receivable Financing

October 3, 2018 at 12:52 PM 2 comments

When you are a small business owner, you constantly look for ways to expand your business and curb the cash flow shortages. This is when receivable financing comes into the picture. Small business owners consider this type of financing more than the traditional and mainstream business financing because it is within easy reach.

To understand it more, here are some things that you need to know about receivable financing:

How does it work?
Basically, receivable financing is a way for small business owners to advance cash based on the amounts due from their clients. The businesses will pay a percentage of the invoice value to Qupital as a fee for advancing cash.

What are the types of receivables financing?
You have to know that there are two types of receivables financing available for small businesses. Types include:
• Factoring: this refers to a business selling its receivables to a third party in exchange

for funds; the risk will be transferred to the company.
• Invoice discounting: this refers to a loan taken out from invoice assets; this will allow

the business to borrow funds against other owed funds.

What is the process behind factoring?
If you consider factoring, rather than waiting for payment from clients, you choose to sell to invoice to a factoring company. The company will then buy the invoice and remits a percentage of its total to you. They will keep the balance on reserve. The balance will be returned to you after the factoring company collects the payment in full.

How does factoring help you?
Many small businesses are afraid of considering factoring services because of the stigma attached to it. There are actually many benefits of engaging your business in a factoring service. Here’s how it can help your business:
• It eliminates bad debt: remember that the risk will be transferred to the company.

This means that the factoring company will assume the risk of bad debt thereby eliminating if not decreasing this expense from your income statement.
• Unlimited capital potential: factoring is the only source of financing that can grow together with your sales. If you have increased sales, there will be more cash available for you to use. At the end of the day, it will allow you to meet business demand.
• No debt acquired: keep in mind that factoring is not a loan. With this, you are not acquiring debt. This will keep your balance sheet in good shape. As a result, it will be easy to obtain other financing services or even to sell the company.
• It is easy and fast: not all people know that factoring is easy and fast. The application is simpler than expected. On top of that, there will be no need for tax returns and financial statements.

In this tough time, you should do your best to find the right alternative financing if you want your business not only to survive but also to thrive.

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