Capital is essential to a business's growth. Without this resource, it may be an uphill battle, even for the company to survive. Conversely, India's financial marketplace has evolved into a position wherein it can aid entrepreneurs with a capital injection with an abundance of funding options. An entrepreneur can opt for a particular financing method depending on the business’s unique requirements. One of the growing preferences for short term loans is "Accounts Receivable Funding."
Also known as accounts receivable funding, this is a type of funding wherein capital can be obtained by leveraging a company's outstanding invoices. An accounts receivable loan is a short term financing option where the tenure is generally between 30 – 90 days.
Since they are considered liquid assets, the value of an unpaid invoice translates to its theoretical value to investors. Nevertheless, many companies perceive them to be a liability as collections can be made only in the future. However, modern-day financing flips the script by allowing businesses to utilise unpaid invoices as an asset that can truly help in business growth and expansion.
The three primary types of accounts receivables financing are:-
It is generally a 6 step process, as demonstrated below.