Accounts Receivable Factoring Vs. Inventory Financing
Accounts receivable factoring and inventory financing are both useful tools that can improve a company’s cash flow. In this article, we’re going to talk about what these strategies are and how they can be combined effectively.
What is Accounts Receivable Factoring?
Accounts receivable factoring is a type of asset-based financing that allows a company to finance its accounts receivable. It is especially useful for companies that work with clients who pay their invoices in a timely fashion, such as those who are with the government. The funds are available as soon as customers are invoiced, and they are generally paid back as soon as those invoices are paid.
What is Inventory Financing
Inventory financing involves leveraging a company’s inventory instead of their invoices. This can come in handy for businesses that cannot secure enough credit from their suppliers as they need. Any necessary funds are available once the inventory is acquired, and they can be paid back once your receivables are financed.
How These Two Strategies Can Be Used Together
If your company is going to use just one of these financing options, the simplest and more cost-effective option is accounts receivable factoring. Your company’s services have already been rendered, so it is just a matter of having your company’s invoiced paid by your clients. On the other hand, inventory financing is still a viable option if the invoices you currently have won’t cover all of your expenses. Inventory financing lines are settled by selling your inventory, which creates invoices. These invoices can then be factored and used to help settle the lines of credit created through inventory financing.
Both forms of financing are flexible enough for most smaller businesses to use, and it is ultimately up to you to decide which of these options is best for your company. For more information about how accounts receivable factoring and inventory financing can benefit your business, contact Bull Market Capital: Business Funding Solutions today.