Accounts Receivable Loans: Should You Rely On Them?

Accounts receivable loan
Accounts receivable loans are often regarded as the quick way out of a financial slump for small and medium-sized businesses.

Here is a question that a lot of entrepreneurs ask: Is it wise to rely on accounts receivable loans? These loans are often regarded as the quick way out of a financial slump for small and medium-sized businesses.


Entrepreneurs who are considering setting up their own business will have all the passion and energy to get started but will not have the funds to do so. They won’t qualify for a business loan simply because they have no financial history that the bank can assess.

The only other option for these entrepreneurs is to shove their dreams back in their pockets and wait for such time when they’ll have enough money to start their own companies. Others may have the capital to start the business but they eventually close down because they don’t have the money needed to keep their business afloat. This is especially true for companies that do business with customers who set up payment terms with them.


Accounts receivable loans are the answer they seek. Instead of applying for a loan – which they will either be refused of or given but with incredibly high interest rates – they can factor out production costs by selling their invoices early on. This allows them to get started on bigger projects offered by clients despite not having the resources to do so.


Weighing Benefits Against the Risks


If you look at it, you are getting your pay from a job before even completing it. That is basically what accounts receivable loans are. Your end of the deal is to make sure you finish the job you were paid in advance for. This way the invoice factoring firm will be able to collect the payment from your client. However, as mentioned, there are risks too. You may not satisfy the client with the project you’ve completed for them and they might refuse to pay. Some clients will simply disappear once you complete the project so you’ll end up paying the account receivable loan back and with penalty fees.


Yet you should not overlook the fact that you need money to keep your business afloat. This is why you need accounts receivable factoring. Just consider these benefits:


–        Finances are secured early
–        Invoice factoring only takes 1-3 days to get the funds, compared to the thirty-sixty days it takes for clients to pay you.
–        The transaction fee for invoice factoring is very low and there are financing offers as well.
–        Cash flow is established early on so you can begin production.
–        The aforementioned risk of clients not paying can be covered with minimal insurance fees.


If you were to weigh both the risks and the benefits, you will realize that opting for accounts receivable factoring is the smart way to go. You want to get started and yet with traditional business loans out of your reach, you will find that accounts receivable loans are indeed a reliable source of financial stability for your company.