There are so many things that you have to know regarding accounts receivable financing such as that it is a kind of financial plan of two businesses wherein one company lends or sells its outstanding invoices to another as a way to get early payments for their due payments. Inside the agreement, the financing company will give an amount that equals the reduced value of the unpaid receivables or invoices in response for a fee. With regards to the payments that are intended for sales between businesses, they are not actually paid automatically during the sale. Take note that such payment will only be paid on the time period agreed mutually by the two parties. The payment can be done within ninety days, thirty days, or perhaps, sixty days, in accordance to the payment agreement. This points out to how buyers will get the chance of purchasing a product without having to make any payment. Right after getting the goods from the seller, you can make payments anytime inside the period of time cited in the agreed payment you signed up for. Conversely, the seller will increase the receivable by the records and sale price under the profits. At a later part, when he or she receives the payment from the borrower, he or she will decrease the accounts receivable while increasing the cash flow. This method is what we call as factoring. Take note that the biggest advantage of accounts receivable financing is its ability to allow sellers to get cash automatically by selling the receivable to another party.
When it comes to those companies that do factoring and are buying accounts receivables to get imbursements from customers, they are interested in purchasing huge accounts, rather than numerous smaller accounts. This is the very reason why the extent of the account will always be a very important consideration for third party companies that are purchasing accounts receivable. Now, what factoring companies do before purchasing accounts receivable is that they review the solvency of the seller. As a way of making sure that credibility will be built and established, factoring companies will review the amount of time it’s been since they first conducted business, and also, the credit history of the seller. In the event that the seller brings has been in the business for a very long time and has a good credit score, it will have more chances of getting the attention of the factoring company.
Another thing about this that you should know of is that companies doing factoring do not take fancy in purchasing accounts receivables that go further than the agreed due date since the said account have no chances or minimum chances of getting paid at all.
All in all, knowing what to expect from accounts receivable is beneficial for you and your company.