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Accounts Receivables Turn to Cash
A Factor Can Buy a Company’s Accounts ReceivableFactoring Receivables | Turning Accounts Receivables Into Cash Received | August 17, 2006
| In the business world, every sale made is a step forward. Every deal closed, every order shipped, and every service provided, no matter how big or small, is a success. But successful selling does not necessarily mean a successful business. Sales that have been made but not collected are accounts receivable, and it is a company’s ability to turn their accounts receivable into cash that can mean the difference between success and failure.
Accounts receivable are recorded as assets on a company’s balance sheet, but they can turn into a liability all too quickly. When sales are made on credit and become accounts receivable, the business must wait for its customers to receive and pay off outstanding invoices, usually on net 30 or net 60 day terms. While waiting to collect on these sales, the business often has to pay its own suppliers, employees, and other operating expenses, creating a large strain on its retained cash. If accounts receivable aren’t being collected in a timely manner, cash inflow can’t keep up with cash outflow, and a business might find itself struggling to stay afloat despite consistent sales. Even if customers pay bills on time according to the terms, the cash flow may not be consistent enough, and just a few non-paying customers can create a financial disaster.
Accounts receivable financing, or factoring, ensures that accounts receivable won’t become a liability. A factor can buy a company’s accounts receivable, providing the business with immediate cash and saving business owners valuable time spent tracking collections. Any business watching its accounts receivable build-up outpace its cash inflow from payments may soon be facing financial insolvency, but factoring is a simple way to avoid that problem. Growth and success depend on turning accounts receivable into cash received, and there’s no better way to do that than through factoring.
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