All you need to know about Accounts Receivable Loans

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What are Accounts Receivable?

The accounts receivable is the amount of money, for a piece of equipment or service that you have delivered to your client but have not received the payment yet. So, naturally, it is the money that your customer owes you. You, as a business company, have the right to receive the money because you have provided your client with the goods he ordered. Also, the accounts receivable have a particular deadline ranging from either 30 to 90 days that is up to three months.

These receivables can cause severe issues regarding cash flows leading to various ways your business can face a setback which is why there are such loans available known as invoice factoring.

What are Accounts Receivable Loans?

With the advancement of Accounts Receiving Loans or Financing, you can get the cash that your customers owe you, by sourcing the invoices to lenders for a small percentage or fee. These loans help you stay above the waters as it saves you from gaining debt and keep the cash flowing for the better running of your business. Also, you can get this loan within as short as 24 hours of applying for it if you have a strong invoice record.

Determining the Need of Accounts Receivable Loans

It is crucial to understand if and when your business needs Accounts Receivable Loans. Firstly, to save you from acquiring this loan unnecessarily because of its fixed fees and secondly, to receive this loan at the right time before your business falls behind. Also, determining the need helps you making a strong case in front of the lenders. So, before acquiring the loan, ask yourself:

  1. Is your business going through cash flow issues?
  2. Is your business in need of more employers?
  3. Does your business need immediate improvements?
  4. Are you willing to take advantage of sales offers from your suppliers?
  5. Is your business unable to fulfill its seasonal requirements?

Eligibility for Accounts Receivable Loans

  1. You have to be running a B2B or B2G business.
  2. Your invoices must be outstanding.
  3. You are running the business since at least the last six months
  4. Your annual business revenue is at least 50,000 USD
  5. Lastly, you need to have credulous clients.

The Step-by-Step Process to get the Accounts Receivable Loans Approved

  1. Make sure you have the documents readily available. You will primarily need outstanding invoices, your bank statements, and your identity. However, your lenders have the right to ask you for more records.
  2. Make a list of unpaid Accounts Receivable on which you will seek the loan.
  3. Apply to your desired lender.
  4. You receive 80 pc to 90 pc of the Accounts Receivable until your customer pays.
  5. Either your customer pays you or your lender as decided in the contract.
  6. Your lender deducts the fees and pays you’re the remaining Accounts Receivables.

Benefits of Accounts Receivable Loans

  1. Resolve Cash Flow Issues: Hindrance in the flow of cash can succumb to your business. There are a few reasons your business may have cash flow issues. One of them is the delay in accounts receivable, and AR Loan can solve that for you.
  2. High Short-Term Loans: If your business is small and is not eligible to qualify for the big loans, you can always apply for account receivable loans. They help keep your business running and provide it the space to improve.
  3. No Need to Provide a Collateral! With Account Receivable Loans, you do not have to worry about providing collaterals to your lenders as these loans fall under the unsecured financing options.
  4. You Stay the Owner of your Business: You got that right! You do not have to share the name or parts of your business with your lenders. You remain the boss!
  5. You Improve Customer Service: When your business is running with the money going in and out rightfully, you and your employers can work to ensure the satisfaction of your customers which adds to the overall effectiveness of your business.

Some Drawbacks of Accounts Receivable Loans

There are a couple of things you need to know of before opting for Accounts Receivable Loans as they might be very appealing, especially for growing businesses:

  1. Expensive: If your business is running low, you might want a more stable loan with lesser fees and interest rates. Though the interest rates are not too high, this option might end up costing you more than your expectation, so it is essential to calculate the costs before jumping for it.
  2. Contracts could be Tediously Long: Yes, it is easy and fast to get these loans approved and receive the funding. However, the application and the contract agreement might be a long, tedious process to get through, depending on the situation of your business.

Summing up, it might be essential to look at some real examples to understand Accounts Receivable Loans to make sure your business needs them. If your business is facing immediate cash flow problems, there is a high chance you need these loans! Interestingly, research shows that Accounts Receivable Loans have a positive impact on businesses in times of financial crisis.