What are accounts receivable loans? There are two possible definitions of accounts receivable loans: one that involves the money that somebody owes your business, and one that involves the money you borrow from someone else.
Your company's accounts receivable are the accounts that owe you money. Through corporate credit, your clients can borrow money - or rather, promise money - in exchange for the goods and services that they use right away. By offering your credit to clients, you can gain many more clients and work with large orders all at once. But the problem with offering credit to your clients is that you're still risking the chance that they don't pay you back. You also have to be able to run your business smoothly in the interim between their taking your goods and services and their actually paying you. In a simple definition, accounts receivable loans can be considered to be these corporate credit loans that you offer your clients, where they promise to pay for what they've already received, sometimes at interest.
The other type of accounts receivable loans are those loans that you borrow yourself. These are short-term loans taken out by an established company, with accounts receivable invoices as collateral. That means that if you don't pay back that loan, the lender will receive the money that your clients owe to you.
But why would your lender care about your accounts receivable? Is that really profitable for them? Let's imagine for a moment that you have a good friend who owes you a hundred dollars. They write you up an IOU (read: invoice,) stating that they owe you the money. Then you decide to buy a motorcycle, but you're ninety dollars short. So you go to another friend and ask to borrow the money. He's hesitant, not sure where you're going to get that kind of money by the end of the week. You promise that if you haven't paid him by the end of the week, you'll give him the IOU for a hundred dollars. That's a significant profit for your second friend, so he loans you the money, you buy the motorcycle, and that's that.
Now, while this is a very simplistic demonstration, it shows how the process works. Your accounts receivable are invoices from those who owe you money, and in order to make money on those transactions, you still have yet to be paid. If your company needs fast cash, you can take out accounts receivable loans from a third party, who will give you the money you need, provided you can provide them something in return to secure the deal. As collateral, you put up the credit that other people owe to you, which allows you the security to borrow money yourself.
Accounts receivable loans aren't the only way to be able to turn your accounts receivable into fast money, either. There are also accounts receivable factoring companies out there that will buy your accounts receivable invoices flat-out, offering you cash in return for a discount on the invoice. While you don't receive the exact amount of the invoice, you still get the cash quickly. This could be a very good idea if you have all of your accounts receivable from one client, increasing your risk. If that one client falls through, all the money you "have" simply doesn't come to you. By converting that invoice to cash quickly, you can ensure that you receive it. By using accounts receivable factoring, you can turn risky clients into real cash, albeit slightly less cash. You can also convert an IOU into quick cash now.
Corporate Credit Concepts specializes in "KEY PHRASE". For more information about "KEY PHRASE" and how it might benefit your business, please CLICK HERE for a free phone consultation.