Is Accounts Receivable Funding Similar To A Bank Loan?

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Sometimes situations arise when business owners are waiting for payments from customers, and internal expenses cannot wait, causing a major strain on cash flow. Businesses have payroll to cover, bills, to pay, and they need working capital in order to grow. This leaves them with the option of getting a bank loan to cover ease the strain, or turn to accounts receivable financing to get the money they are owed.
TRADITIONAL BANK LOANS Bank loans offer capital to business owners, and people relied upon them heavily until the crash of 2008. After that, banks started employing lending practices that were much more restrictive than previous years, making it harder for businesses without impeccable credit ratings or a strong financial history to secure loans. Taking on debt is also not always in the best interest of business owners, as it impacts the credit rating, and can prohibit getting any long-term funding until the previous loans are repaid in full. Add on to this high interest rates, and a payment schedule that needs to be met monthly regardless of revenue, and businesses can easily end up back at square one instead of fixing their cash flow problems.
ENTER ACCOUNTS RECEIVABLE FINANCING Accounts receivable financing is a method by which business owners can monetize their unpaid customer invoices in order to receive the money they are owed a lot faster. Business owners sell their unpaid customer invoices to a commercial financing company at a slight discount in exchange for immediate cash. Rather than getting caught up in red tape, taking on debt, or waiting weeks for an approval (or rejection) on a traditional bank loan - an accounts receivable financing agreements can be drawn up in about 48 hours, with funds disbursed in fewer than 24 hours after submitting an invoice. This relieves the strain on cash flow while also preserving the credit rating.
A SHIFT IN ACCOUNTING RESPONSIBILITIES One of the other main features of accounts receivable financing is that businesses do not have to track payments from every single customer. As invoices are generated, they are submitted to the financing company in exchange for cash. The financing company then takes on the responsibility of getting payment from the customers. This means your business can focus its accounting responsibilities on growth and internal projects, as opposed to spreading itself over tracking down unpaid invoices across multiple accounts. All revenue from invoices will come from the financing company instead, which streamlines the accounting process.


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No. Accounts receivable financing isn't a conventional loan and you aren't assuming any debt. The importance is in your clients' invoices, not on your balance sheet. Commonly, funds are available quickly than with conventional loans, commonly within 24 hours or less. Accounts receivable financing, or invoice factoring, provides a consistent flow of financing, whereas conventional loans are commonly one lump sum.