If your business needs quick cash, you may be able to factor accounts receivable in order to get the money you need. Even if you're not hard-pressed for cash, it may often be a good idea to factor accounts receivable, just to avoid unnecessary risks in your business.
But what does it mean to factor accounts receivable? Let's start with the basics and define accounts receivable.
Your company's accounts receivable are the accounts that haven't been paid yet. When you make a purchase on corporate credit, you're gaining products or services from someone without having to pay up-front yet; you're taking it out on credit. When someone takes out corporate credit with your company, your accountants will record the price they owe as "accounts receivable," or accounts that haven't been received yet. That means that your accounts receivable are the debts that you still haven't collected on. Accounts receivable represents the money that you have in theory, but don't have in cash yet. It's the money that people owe you, but not the money you have yet.
Now, this represents some advantages and disadvantages. One advantage of accounts receivable is that it can look very good on a credit report. When your credit report shows that you have more money coming to you than you owe anyone else, that means you're a good, healthy business. Keeping accounts receivable allows other companies to use corporate credit with you, which will expand the number of companies that are willing to do business with you.
There are also some serious disadvantages, however. No matter how good it looks to have someone owing you that money, the simple fact remains that you don't have it in your hand. Imagine that you have two roommates, and each of them borrows twenty dollars to take their (respective) girlfriends on a date. One roommate pays you back the next day, after visiting an ATM, and you're only twenty dollars in the hole. But then your own girlfriend starts hinting about her birthday tomorrow (which you had completely forgotten.) When you go to your other roommate about the twenty bucks, he gives you a few hems and haws and launches into a string of excuses. You might get the money from him before he moves out, but you're simply not going to be able to get that twenty dollars before your girlfriend's birthday, and you don't want to have to foot the bill for dinner with only twenty dollars.
So what can you do in a situation where you have the money - but not yet? Well, in the case of the romantic dilemma, you can go to your richer, wiser friend next door and ask him for a deal. You tell him that your roommate owes you some money, and you ask for twenty dollars from your neighbor. Your neighbor wants to make a profit (this is why he's richer than you are,) so he tells you he'll give you nineteen dollars, and then take the twenty from your roommate. That way, he's making a five percent profit, and you're only minus one dollar. You tell him it's a deal, take the money, and tell your roommate he can pay the money back to your next-door neighbor.
Now back to your real business. When you need fast cash, or you have an accounts receivable invoice from a risky or untrustworthy company, you can go to a third party that will factor accounts receivable for you, buying your invoice at a discount and providing you the money up-front. While it won't get you the full amount, it will get you the money fast - and it'll give your riskier clients to someone else to deal with.
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.