{"id":3031,"date":"2020-06-10T10:45:23","date_gmt":"2020-06-10T15:45:23","guid":{"rendered":"https:\/\/lqdfinance.com\/?post_type=insights&p=3031"},"modified":"2020-12-03T13:40:30","modified_gmt":"2020-12-03T19:40:30","slug":"accounts-receivable-financing-vs-contract-financing-which-one-best-serves-your-business-needs","status":"publish","type":"insights","link":"https:\/\/lqdfinance.com\/insights\/accounts-receivable-financing-vs-contract-financing-which-one-best-serves-your-business-needs\/","title":{"rendered":"Accounts Receivable Financing Vs. Contract Financing: Which One Best Serves Your Business Needs?"},"content":{"rendered":"

Most business owners give up when they fail to secure a traditional bank loan. More so when they can’t succeed with other funding options- investors, crowdfunding, PLO financing, name it! If you are stuck between the proverbial rock and a hard place, maybe it’s time to look elsewhere. Other <\/span>business funding<\/span><\/a> options can grant your working capital a lifeline. Two of the most essential are accounts receivable financing and contract financing.<\/span><\/p>\n

While both can hand your business the kind of growth capital<\/a>, scalability, and flexibility it needs, they are two very different financing options. Our experts at LQD Business Finance go the length to break down each one of them.<\/span><\/p>\n

Accounts Receivable Financing (A\/R Financing)<\/span><\/h2>\n

Accounts receivable financing is similar to a traditional loan concerning how it works. While a typical loan requires that you present tangible assets (such as property or even personal assets), accounts receivable financing places your firm’s account receivables as collateral. Simply put, it is a type of asset-based lending which helps to clear the unpaid invoices.<\/span><\/p>\n

How it Works<\/span><\/h3>\n

This type of loan usually has strict qualifications. Your firm’s accounts receivable must meet the financier’s qualification requirements. Upon approval, you MUST advance 70%-95% of your invoices to the lender. They will also charge a holding fee of about 1%-5%, depending on the size of your invoice. The loan you receive will usually be the net percentage of financing charges.<\/span><\/p>\n

Also, you will not need to sell off your accounts receivable (at least not entirely). In the period when your accounts receivable will be on hold, you will still be able to collect payments from clients. But your company will run seamlessly, just like before.<\/span><\/p>\n

Let’s use a practical example to elaborate on this concept.<\/span><\/p>\n

Your tech company isn’t doing as well as you anticipated. Let’s say you have outstanding invoice balances totaling $100,000, which you must clear to make payroll this month.<\/span><\/p>\n

You would contact a lender (also called a factoring company) and have them draft an account receivable financing deal for you. Then they’ll fulfill a percentage of your invoices upfront. As mentioned, it can never be 100% because they’ll need to take a cut.<\/span><\/p>\n

Going forward, you’ll have the cash to clear imminent payrolls, and the receivables financing company will assume responsibility to pay off those invoices. Isn’t that a big WIN for your struggling finances?<\/span><\/p>\n

When it Works Best<\/span><\/h3>\n