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This question is about what a finance assistant does.
What is receivables finance?
Receivables financing is the act of borrowing against the outstanding funds owed by a company. Since receivables are considered assets, there are several ways that a company can use them for the purposes of financing.
One method used to finance receivables is called factoring. This method involves a company selling its receivables to a third party. The company will receive between 79% and 90% of the value of the receivables from the third party. This allows the company to have most of the outstanding money owed them before these receivables come due. Later, the third party will collect the owed money and charge the company a fee for their services.
Asset-based lending is another popular way that a company may finance its receivables. ABL allows a company to secure a loan based on the outstanding receivables owed to them. As receivables are indeed considered assets, they can be used as loan collateral.
Receivables financing can carry with it several risks. It is important that a company considers a recourse or non-recourse arrangement with a factoring partner. This arrangement will determine who is responsible for any outstanding money that is defaulted on by a customer. Additionally, companies should consider if they want their arrangement to be confidential and prevent their customers from knowing that their debt has been sold to a third party.
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