Receivables Financing May Be Fast-Capital Option For Supply Chain Companies
Supply chain businesses that need quick access to growth capital may be able to tap funds within a day by selling their customer invoices. This option offers an alternative – albeit a generally more expensive one — to traditional bank loans and credit lines, notes one receivables financing, or invoice factoring, firm.
Manufacturers, distributors, transportation companies and retailers may be unprepared for an uptick in consumer spending, the firm says, pointing to indicators of a possible recovery after an unexpectedly slow holiday season.
Receivables financing allows companies to “liquefy” customer invoices immediately, before the customer pays, the firm notes. Factoring fees range from 1 percent to 6 percent, and this financing avenue allows companies to tap more than 90 percent of receivables in a day, the firm adds.
A similar but more expensive alternative is purchase order financing, in which a company obtains an advance on a purchase order rather than on a completed customer order and invoice. Retailers, meanwhile, can receive advance financing based on their average monthly credit- and debit-card transactions, the firm says.
“Alternative financing tools like receivables financing and business cash advances generally have higher rates than traditional bank loans; however, they also have advantages, such as being short term obligations –usually less than a year at the most,” the firm says. “Since financing is based on self-liquefying transactions, qualification is also less onerous and accessing the necessary business funds can be much quicker when using these supply chain finance tools.”
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