If your company accumulates unpaid invoices, one way to approach collection is to use financing to help bring in needed cash. In tough economic times, you need to protect the company’s present and future viability. Having cash on hand is critical, and when clients don’t pay invoices on time per the terms set, you need to find cash alternatives. Here are items to review if you are considering accounts receivable financing to cover the cash shortfalls due to unpaid invoices.
Understand Financing Can Include Loans or Selling Assets
If you decide to pursue a loan to cover the balance of unpaid accounts receivables, you will retain the collection process for the outstanding items. The accounts receivable ledger serves as the collateral for the loan. There are multiple forms of business loans for you to consider, so make sure you do your homework to find which loan is best for you.
Another option is to sell some or all your unpaid accounts receivable bills to a company specializing in collections. You will receive a cash disbursement for the specific accounts receivable you decide to sell. The actual amount you receive will be less than the unpaid invoice amount. This reduction will be due to administrative fees charged by the collection company. Review all the collection companies to find the best fit if you decide to sell your assets.
Understand Financing Contract Language
Whichever financing path you pursue, there will be a contract involved. You must understand the explicit language for the prime rate calculation and the compounding for interest-rate calculations. These items will impact your payment. The length of the contract will also be a key consideration. The duration and repayment will be necessary considerations.
One item that businesses need to account for with selling accounts receivable is if there are any non-payment clauses. You have taken on more debt without guarantees the debtor will repay the collection company or you. Suppose a debtor refuses to pay the collection company. In that case, contract language may allow the collection company to come after your business after a specific period for reimbursement of loaned amounts.
Any form of business, whether small or big, will at one point require business credit to support various day-to-day business operations. At one point, the company may need quick money to fix its operations. Accounts receivable financing is a possibility to help businesses overcome those financial challenges.