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Accounts Receivable Loans
Accounts receivable financing is a type of loan for securing fast working capital that uses a business’s accounts receivable as collateral against the loan. It should not be confused with accounts receivable funding/factoring. Accounts receivable financing is a business loan, not an outright sale.
With accounts receivable financing, the company purchasing the accounts receivable then takes on the responsibility of collecting them directly. However, with accounts receivable financing, loan payments are due as the business’s accounts receivable are collected. The small business is still responsible for collecting on those invoices and for making its loan payments. If payments are not made, the business’s accounts receivable can be seized.
As with accounts receivable factoring, the amount received from an accounts receivable financing loan will be less than the total value of the invoices that the small business puts up as collateral. Values are assigned to each invoice based on the amount of time they have been outstanding. The repayment period for accounts receivable financing is generally shorter than for most other loans. Since payments are made as invoices are collected, in theory the loan should be paid off once all the invoices have been paid (hopefully not more than 90 days).
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