Although gaining profits is the main goal of all businesses, having a good and stable cash flow is also another priority worth focusing on. If your business regularly experiences cash flow problems, it is time for you to consider various financing options that will give you the ideal solution that will enable you to overcome this difficulty.
One of the most popular options businesses go for to improve their cash flow is to get a bank loan. However, financial experts say that loans have never been considered a viable financing option for small and medium sized businesses. This is because banks loans are never easy to obtain. For a loan to be approved, banks require borrowers to pledge their collaterals and assets as security with them against the cash loan. Most of the time, start-up firms and small businesses fail to meet the stringent requirements for obtaining finance from banks. In addition, bank loans are not at all cheap. They come with high rate of interest and because of this, there is a high tendency for small businesses to fall into debt when they take out bank loans.
Account Receivable Financing: A Means Of Improving Your Business’ Cash Flow
To protect your business from falling into debt and sustain your cash flow, you can consider getting account receivable financing. With this financing solution, you can leverage your accounts receivables raise enough funds to keep your business going for those 30, 60, or 90 days while your invoices are lying pending with you, waiting to get cleared by your clients or customers.
Account receivables financing or business factoring is a simple and affordable method of obtaining funds for small and medium sized enterprises. Instead of waiting for your loan applications to get approved, you can approach a bank to purchase your accounts receivables. Most established banks and financial institutions do not have any lengthy requirements for factoring accounts receivables. What they typically require is that you have reliable and trustworthy customers. If you have that, you can obtain cash immediately, in just a matter of days.
With this financing option, the bank or factoring company would purchase the invoices from you and would offer you an advance against them. In general, factoring accounts receivable would let you enjoy as much as 90% of the gross value of your accounts receivables. You will get the remaining amount after 30-60 days when your clients clear the invoices. The bank or factoring company will give you the remaining balance after deducting a small factoring fee.
Account receivables financing is not a loan. With this financing service, you are selling your accounts receivables to the financial establishment and in turn, they will provide you with cash against them. As such, you won’t get into any kind of debt trap. You can utilise the cash you get for buying inventory, paying salary to your staff, and for any other purpose.
Read more about account receivable financing on the website of HSBC UAE.