The benefits of Accounts Receivable Finance for suppliers include greater liquidity, minimal risk, and no collateral requirements.
FREMONT, CA: Accounts Receivable (A/R) financing allows companies to receive payments for their invoices early. Invoices that are paid early help with cash flow and give suppliers’ access to working capital otherwise unused.
To attract international buyers, suppliers often offer open account terms, also called deferred payment terms. In these terms, buyers are allowed to pay for goods after they have been shipped and delivered, meaning that it can take several months for a supplier to receive payment for goods it has already shipped.
In A/R financing, the supplier receives advance payment from a third-party financier while the buyer still enjoys open account terms.
The Accounts Receivable Financing Process: Invoices are sent by the supplier to the buyer with a 30-120-day due date. The accounts receivable financier will then advance a percentage of the invoice value to the supplier. On the due date, the buyer pays the full invoice amount to the financier. Afterward, the financier sends the supplier the remaining invoice amount minus any service fees.
The following are some of the significant benefits of accounts receivable finance for suppliers:
Liquidity increased: Cash flow shortages caused by deferred payments can cause problems for suppliers. Using A/R financing, suppliers can finance more orders, manage manufacturing or logistics costs, pay staff, and maintain growth. Suppliers can overcome short-term financial challenges with this increased liquidity.
Open Account Terms are available: Having open account terms for international trade deals maximizes the cash flow of buyers. Many suppliers are at a disadvantage because they cannot access the working capital tied up in those invoices. Due to this, they often have to refuse open account terms requested by buyers, resulting in lost business.
With accounts receivable finance, suppliers can offer open account terms to more buyers without worrying about short-term cash flow challenges.
Risk reduction: In emerging markets, suppliers face higher risks when offering deferred payment terms to large buyers, especially if those buyers are unknown to them. In non-recourse A/R financing, the financier assumes all risks associated with the invoice if the buyer fails to pay. The supplier will have peace of mind and won't have to chase the buyer for payment.
Collateral is not required: A/R financing is unsecured financing, meaning no collateral is required. There are some finance agreements that require collateral, such as bank loans and letters of credit. If the invoice is not paid, companies could lose ownership of assets.
Since invoices secure cash advances, A/R financing does not require additional collateral. Actually, suppliers are taking advances on the money they already owe.
