When to Know If It’s Time for Receivable Financing

The business industry is in a constant state of flux. There are times when the conditions are favorable for particular ventures and bad for others. It’s no surprise if the tables turn completely from day to day. Business owners everywhere steel themselves for the moment when they would run into a financial bump that isn’t easy to fix. For these situations, they might need to turn to receivable financing in order to stay afloat.

Receivable financing is a form of alternative funding strategy in which business owners sell their invoices to a lending organization at a discounted price. In exchange for the future payments for these receivables, the organization would instantly provide the owners with cash amounting to the discounted equivalent of the invoices. It becomes the lending organization’s responsibility to collect on the outstanding payments.

While this can work out to the business’s advantage, there is still a lot of risk involved. It must be given careful thought. How does one know if when is the right time to try this funding scheme? The following are the parameters upon which a business owner must base his or her decision.

Is the money needed now?

Receivable financing is a practical solution since the cash would be handed out instantly. It can immediately be used to attend to the pressing financial needs of the business. On the other hand, there are fiscal consequences as well. The discount on the invoices means that the business lost more than it gained. However, some business owners deem this an acceptable loss because the money from the lending organization would be used to improve the business, and thus, allow them to recoup their money.

Is this the only way?

There are other financing alternatives that businesses can try. Perhaps these other methods would have more favorable terms for the organization. Receivable financing is only one of the many funding options available for companies with a cash shortage.

Does the company’s survival or expansion depend on it?

When all other monetary sources have been exhausted, then it is time to apply for receivable financing services. There are many institutions that are willing to buy business receivables at a reduced cost. Of course, business owners have to be careful when entering into such a transaction. He or she must thoroughly understand the terms of the agreement to ensure that it is legally sound for the organization.