There is a plethora of things that you have to be aware of regarding accounts receivable financing, and one of which is the fact that it is a kind of financing arrangement between two companies by which one of them lends or sells its unresolved invoices to other company in order to get early payments on their due payments. Based in the agreement, the financing company is required to provide an amount that is equal to the reduced value of the unpaid receivable or invoice, 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. Most of the time, payments are done based on the time period agreed mutually by both parties. It may it within thirty days, sixty days, or even ninety days, based on the payment agreement you have agreed upon. This only goes to show how buyers can purchase the product devoid of having to make any initial payment. Once the product has been received, the buyer will make payments anytime inside the period of time stated in the agreed payment. Meanwhile, the seller can increase the accounts receivable through records, and also, 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. According to experts, the finest advantage that accounts receivable financing has to offer is enabling sellers the chance to get cash instantly by selling receivables to another company.
With regards to companies that do factoring and are purchasing accounts receivable as a way to get imbursements from customers, they are, sometimes, fascinated in purchasing huge accounts, rather than several smaller accounts. And because of this, the extent of the account will always matter for third party companies that are buying receivables from other entities. Prior to them moving on with the purchase of the accounts receivable, they will first review the solvency of the seller. In order to institute trustworthiness, what factoring companies do is that they will review the credit history of the seller as well as the time period it’s been conducting business. Therefore, if seller companies have been conducting business for a very long time now, and have a very good credit score, they will get more chances of attracting the attention of factoring companies.
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 these and more are what you have to be aware of regarding accounts receivable.