Accounts payable financing or also referred to as vendor financing or trade credit, is a form of credit that allows businesses to borrow money from a vendor for purchasing their products and services. It is similar to invoice factoring because your creditworthiness is one of its qualifications. As much as possible, you should also take care of your credit score because it is another factor that lenders are taking into consideration.
What is accounts payable finance?
An accounts payable finance is known as a viable solution for businesses that need extra spending money for undertaking projects. Whether you need additional cash for purchasing equipment or office expansion, accounts payable financing is the solution to your problem. This type of financing provides you additional working capital without touching your resources or assets.
You can fully benefit from it because it can help you to establish or build a great relationship with your suppliers. This financing also entitles you to bulk discounts and special promos. You have to keep in mind that in order to enjoy this privilege, you have to prove you have an outstanding payment history. With this financing, you will also gain a competitive edge over other businesses.
Once your business receives goods, you will be given 30 to 90 days so pay back the manufacturer or supplier. Your lender will give you credit, but you have to make sure that the credit will be repaid once a fundable receivable or inventory will be sold. An invoice factoring company buys these assets.
As a business owner, you will consider this type of credit valuable once your supplier offers you a payment discount according to the payment received within the given period. For instance, you paid your credit within 10 days, then you will be given a 2% discount. One thing that makes accounts payable financing beneficial is that it provides you more profit. There is also an extended payment date offered to raise free cash so you can use your credit for paying monthly bills.
Accounts payable loans or financing is a preferred option because you do not need vast amounts of money to qualify. If you need more funding for business expansion, taking out an accounts payable loan is your best bet because even with a small amount of money available, you can still purchase additional inventory.
The best thing about this type of loan is that you will only be required to pay around 10% to 20% of what you owed. Once you acquire the added inventory, you have the option to raise the amount. Another reason accounts payable loans are beneficial is because of its ability to pay debts.
If you are worried about paying the total amount of your purchases, accounts payable financing resolves your problem. All you need is to pay off the service loan using the income you generate from your business.
Benefits of accounts payable financing
For businesses that do not have assets or large customer base to secure a loan, the accounts payable funding is a suitable option. While it may be a type of unsecured loan, it does not automatically place the burden on borrowers. In fact, accounts payable financing offers a win-win solution through a payment arrangement. If you are running a small or medium-sized business, there are many benefits you can obtain from accounts payable funding.
It is not easy to grow your business when you have a lot of things to worry about such as repaying your debt. Accounts payable financing makes it easier for you to gain access to extra cash while also paving the way for your business to grow. Also, it is your company that can reap the benefits of the revenue that accounts payable loans generate. With this arrangement, your business will have more chances to accept more projects, replenish stocks, remain operational during economic downturn and provide flexible payment terms.
Your worries about missed or delayed payments will be put to rest with this type of financing because the company will take care of all your dues. You just have to prove that you can pay back the money you took out when you applied for an accounts payable loan.
You can gain greater peace of mind because you are well aware of how the process works. Since it minimizes the involvement between suppliers and customers, people outside your company are not going to find out that you are employing them with financial assistance from a financing company.
How to qualify
One reason why businesses hesitate to take out a loan from a bank is because of the long list of requirements they need to comply with. More often than not, businesses borrow money because they lack assets that financial institutions will ask as a collateral. Any plans of business expansion will come to a halt because of the lack of resources. This is where accounts payable finance comes in.
There is no need to worry about offering your personal assets to secure a loan. While it is still classified as a bank loan, your assets will remain intact even when you are granted credit. You just have to demonstrate that you can pay back the money you borrowed. There are many ways to prove it without putting your assets at risk.
Once you satisfy the corporate financing company that you are a good payer, you will get the credit you need so you can undertake any business project. The process is straightforward and will not require you to sign or fill out a lot of forms.
The bottom line
The flexibility of accounts payable financing, makes it the most preferred option for businesses wanting to steer clear of opportunistic lending companies. It gives you security because this type of financing will not use your facility in case you default on your payments. It is not even considered a type of loan but a long-term cash flow strategy. With its flexibility, you can use it for replacing your current finance arrangements or working alongside other finance options.