A Bird in the Hand is Worth Two in the Bush

factoring invoices, factoring company
Accounts receivable financing is like that. It gives you ready cash now and removes the risk that you might not be able to obtain the full amount at some later date.

There is a story behind this famous English idiom which dates back to the 17th century.

The gist is that a sure thing right now beats a promise of better things in the future.

 Accounts receivable financing is like that. It gives you ready cash now and removes the risk that you might not be able to obtain the full amount at some later date. And it’s that uncertainty that can disrupt your company’s strategies.

All bank loans require some form of collateral. In most cases, it’s the item itself for which the money is advanced. So if take out a mortgage so that you can buy a house, then the house itself is the security. If it’s for a car or a boat, then the same principle applies.

 

The title on the item, that piece of paper that shows that you are the rightful owner, is held by the bank so that if you are unable to repay the load, then can sell that security and get their money back.

 

Sometimes, banks will loan what they decide is the value of the item, regardless of how much you have paid for it. And in the case of a house, they normally require you to have some skin in it, to the tune of about 20% of the purchase price. In that way, they feel that you are more likely to honor your commitment because if you failed to do so, then you would lose not only the house, but your money as well.

 

I’ve reminded you of how bank loans work in order to help you understand the benefit of using accounts receivable financing instead. Instead of borrowing against your invoices, you can sell them instead. In other words, it’s a sale, rather than a loan. That means you won’t have to pay it back, ever.

The accounts are sold at a discount. The seller gets ready cash, and the buyer makes a profit on the debts when they are fully paid. It can be a win/win for both parties.

If the debts are old, then the value of the accounts is likely to be less than if they were current. That’s because they tend to be more difficult to collect. Each company will have its own policies for this, and you should check with yours beforehand.

 

The “bird in hand” is cash today. The “two in the bush” are found in the hope that you might be able to collect the full amount in the future.

 

Let me ask you something.      Is it worth the risk?

 

Rather than write off the outstanding debt now and receive nothing, wouldn’t you rather get something for it instead? Wouldn’t you prefer to shift that risk onto another firm?

 

When you’re bills aren’t paid, it’s difficult to concentrate on the really important things. But, if you sell your accounts receivable, that will free up your mind for what matters the most.

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Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

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