Many business owners are somewhat confused about the difference between accounts receivable financing and factoring. These two terms are certainly different in how they are arranged, although both will put cash in your hands so that you can support your day-to-day operations, or prepare for business growth.
Accounts receivable financing is sometimes referred to as Asset-Based Lending, because the receivables themselves serve as collateral for a loan you obtain from an alternative lender. While factoring has its own set of advantages, there are a great many benefits which your company would realize by engaging in accounts receivable financing.
Benefits of A/R financing
Most likely an alternative lender involved in asset-based lending will have considerable experience in your specific industry, and that means they will understand all the subtleties and nuances of conducting business in your field. That will help them understand the nature of your business better, so they can provide better support for you.
As opposed to factoring, A/R financing is considered much more flexible, because it gives you as a company more options with regard to any invoices you offer as collateral. In factoring, a company is generally obliged to sell all of its invoices to the factor, without much real choice involved. While asset-based lending does involve a loan which must be repaid, it also calls for much less involvement on the part of the alternative lender.
A factoring company must become a very involved, because it has actually purchased your invoices and is therefore obliged to collect the amounts from your customers. In A/R financing, there’s no need for any of that, so the alternative lender isn’t really involved at all after the loan has been set up. You can also count on having access to additional resources from an A/R lender, for instance payroll processing, workers’ compensation, tax guidance, and back office administration support.
Would your company benefit by accounts receivable financing?
This is a form of funding that can really add stability to a company, and can put cash in your hands quickly for any business purpose. Contact us at Northgate Capital Finance so we can discuss how you would benefit by accounts receivable financing.