Commercial finance glossary
Accounts receivables
The term accounts receivables is used when a company has made a sale but has not yet received a remit for the goods from the customer.
Typically, accounts receivables will be dealt with by issuing the customer with an invoice to be paid within an agreed time-frame, dependant on the company's or the client's financial situation.
Companies tend to allow customers to operate on credit by keeping a ledger of accounts receivables which avoids having to arrange payment from the customer for each individual transaction.
Accounts receivables are considered a current asset, representing a legal commitment by the customer to remit payment.
For certain companies keeping record of accounts receivables represents a full-time job. If the task becomes too large to be carried-out by hand it can be managed using accounting software.
Account receivable financing
If a company finds it needs more cash to keep the business operating smoothly, it can borrow against the account receivables through a service known as accounts receivable factoring.
Using a third party finance provider the company may borrow against the value of any outstanding and future accounts receivables paying a small percentage in return.
As a source of short-term finance, accounts receivable factoring offers a less rigid framework within which to operate than that of traditional finance methods such as overdrafts or loans, as the borrowed amount is relative to the sales that can be generated.
An added advantage of this form of factoring is that the company providing finance will also take over administration of the sales ledger, handling all responsibilities associated with handling payment.
