Accounts Receivable Loans

Not to be confused with accounts receivable factoring, accounts receivable loans are small business loans given with a company’s accounts receivables used as collateral. In accounts receivable factoring, the debt is actually purchased for a percentage of what is owed and the purchaser becomes responsible for collecting it. With a loan, the applicant retains the debt and is responsible for collections, but payments may be scheduled to come out as invoices are paid. If invoices are not paid, the loan payments still need to be made or accounts receivable could be seized by the lender.

Using account receivables as leverage to generate cash is a practice that goes back thousands of years to medieval times. Merchants who were about to embark on a voyage would often sell their accounts receivable to a factor for a percentage of what was owed. The factor would advance them the cash they needed to buy goods for their voyage, and then be responsible for collecting the debts. In those days it was practical, because those who refused to pay faced severe consequences, even imprisonment.

As business evolved over the centuries, factoring became impractical and banks developed the accounts receivable loan as a financial vehicle for retailers seeking to purchase new inventory. It was extremely popular in the years before credit cards were developed and is still looked on today as a more viable option for avoiding high interest payments. If you are a small business owner and have money owed to you, it is possible that you may be eligible for an accounts receivable loan.

One very attractive feature of an accounts receivable loan is that more attention is paid to the credit score and payment histories of those who owe you money than to your own credit score and history. If you’re a subcontractor or distributor for a larger company and they are established and have a solid credit reputation, you may be able to get a loan on their credentials, even if yours have been a deterring factor in the past. Here at SmallBusinessFinance.net, we can connect you with banks and lending institutions that offer accounts receivable loans. Register with us today to learn more.