Accounts Receivable Financing Verses Purchase Order Financing

August 17, 2016

Two types of addition business costs that generally get abashed with one addition are Accounts Receivable Costs and Purchase Adjustment Financing. It’s barefaced that they sometimes get confused, however, they are two actual altered types of addition business costs that serve two actual altered purposes.

Accounts Receivable Financing is acclimated if you accept outstanding invoices on your crumbling address and wish to admission that banknote now instead of cat-and-mouse to be paid at a afterwards date.  NOTE:  To authorize for Accounts Receivable Financing, your artefact or account accept to accept been delivered and invoiced; contrarily there are no Accounts Receivable invoices to use as collateral. 

The two types of Accounts Receivable Costs a lot of frequently acclimated are Asset Based Lending and Factoring:

  • Asset Based Lending - You can get acceptable coffer costs or addition business costs in the anatomy of asset based lending.  If you authorize for coffer financing, go that avenue aboriginal because the amount of basic will consistently be beneath than non-traditional asset based lending.  You accept a band of acclaim from a coffer or non-bank lender and use your accounts receivable invoices as accessory for the line.  Each academy has altered underwriting standards; however, the important affair to bethink is that the backbone of your aggregation will still play a role in accepting approved.  It will be not be accessible to get coffer costs if your business is accident money because banks are actual conservative…and accurately so; they’re not authoritative abundant money on your band compared to non-traditional lenders.  These non-traditional lenders will still accept to authorize your aggregation in the underwriting action (although beneath stringent) and accept assertive covenants angry to the band in adjustment for it to break open.
  • Factoring – This is a anatomy of costs area a 3rd affair purchases your accounts receivable invoices at a abatement so you can accept alive basic today instead of accepting to delay 30, 60 or 90 canicule to be paid.  Factoring is added adjustable that asset based lending in the faculty that you’re able based on the backbone of your clients, not your banking strength.

Purchase Adjustment Financing, aswell accepted as PO Financing, is acclimated if basic is bare to accomplish an adjustment afterwards accepting a PO.  Smaller companies that alpha to accept beyond orders can about-face to this blazon of addition costs to advice sustain growth.  PO Costs alone makes faculty if accumulation margins are ample abundant to account the amount of capital.  It can be costly; however, it’s still cheaper than equity.

So remember, Purchase Adjustment Costs is acclimated on the foreground end of a transaction and Accounts Receivable Costs is acclimated on the back-end of a transaction.  If your aggregation needs costs for advance or survival, these two types of costs may be actual accessible costs tools.