When we say accounts receivable payment, we are referring to a kind of financial plan of two businesses by which one of them lends or sells its unresolved invoices to other as a way of making sure to get early payments for their due payments. Based in the agreement, the financing company is required to provide an amount that is equal to the reduced value of the unpaid receivable or invoice, in response for a fee. When it comes to the payments that are intended for sales between businesses, they are not automatically paid at the same of the sale. The payments will be paid according to the time period both parties have agreed upon. You can pay for the fee within sixty days, ninety days, or probably, thirty days, according to your payment agreement. This only goes to show how buyers can purchase the product devoid of having to make any initial payment. Right after getting the goods from the seller, you can make payments anytime inside the period of time cited in the agreed payment you signed up for. On the contrary of it, the seller will increase the receivable by the sale price as well as records under the profits. When the seller or lender receives the payment coming from the borrower, he will decrease the accounts receivable, while increasing the cash flow. This method is what we call as factoring. Take note that the biggest advantage of accounts receivable financing is its ability to allow sellers to get cash automatically by selling the receivable to another party.
Bear in mind that those who are purchasing accounts receivables as a way to get imbursements from customers are actually interested in buying huge accounts, rather than several smaller accounts. And because of this, the extent of the account will always matter for third party companies that are buying receivables from other entities. Prior to them moving on with the purchase of the accounts receivable, they will first review the solvency of the seller. As a way of making sure that credibility will be built and established, factoring companies will review the amount of time it’s been since they first conducted business, and also, the credit history of the seller. If it so happen that the seller company does not only carry a good credit score, but has been conducting business for quite some time now, it will have more chances of getting the attention of factoring companies.
Another thing about this that you should know of is that companies doing factoring do not take fancy in purchasing accounts receivables that go further than the agreed due date since the said account have no chances or minimum chances of getting paid at all.
All in all, knowing what to expect from accounts receivable is beneficial for you and your company.