Accounts receivable can be considered an asset for your company to use in applying for a loan. There are business companies that offer their products and services to their clients and are paid at a later date. Their clients’ payments are expected to come in on a certain date with an anticipated amount. These payments can be utilized as guarantee for a factoring invoice loan or for an accounts receivable financing loan.
What should a business consider before applying for these kinds of loans?
Since the companies will be using accounts receivable as a guarantee, they should make sure that their customers are good payers. Otherwise, it may create a financial conflict in your loan. In addition, check what type of receivable it is. It is also advisable to use current accounts receivable.
What is the difference between the two loans?
The factoring invoice loan is like trading your accounts receivable with the lender. They will be purchasing your accounts receivable, although the trade is only equivalent to a percentage of the total amount of the accounts receivable. The reason behind this exchange is to serve as a buffer in the event the receivables cannot be collected in full. When it comes to collecting the remaining receivables, the borrower is still responsible for fulfilling it in order to pay back the loan.
With the accounts receivable financing loan, the lender only approves up to 70% of the total amount of accounts receivable, and the remaining 30% serves as a buffer for potential uncollected receivables. As the lender buys the outstanding accounts receivables, they also take responsibility in collecting them.
Both factor invoice loan and accounts receivable financing loan are helpful transitory business financing loans for the company. Actually, many businesses have resorted to these two loans because of the efficient functions they provide.
When applying for these loans, there are many available lenders who offer these two loans. You can simply contact them and validate their credentials before engaging in any kind of financial process. Make sure to sort the accounts receivable before presenting them as guarantee for any of the two loans. You must choose current receivables and those that are being paid by reliable and good-paying customers to avoid superfluous financial conflicts.
