A business can enjoy the many benefits of a traditional business loan with fewer disadvantages by adopting an accounts receivable policy. Different customers might appreciate the ability to pay for goods or services, but payment flexibility has the potential to create unwanted consequences. A company can save itself unnecessary stress by finding ways such as receivables financing to make sure that it can cover its expenses and offer clients exceptional services. Receivables’ greatest advantage is its competitiveness over traditional loans.

When a business needs money to cover its expenses, it has to pay a certain fee just to receive any amount from a bank. This process can seem counter intuitive when the company merely wants to get money in the first place, not pay more just to receive what it was going to have. Accounts receivable differs from bank loans in that it does not always require money down to access it. Instead, a company can sell its receivables to a third party that arranges payment with the company’s payees. This process is an alternative to a bank loan in that a business receives the money it needed but does not have debt.

Accounts receivable financing also grants cash faster than most other options. That’s why it can be seen as an attractive alternative to bank loans. A common use for receivable financing is to gain a quick influx of cash when it has not yet come in. A bank loan might not be the most suitable option when time is an important factor. By contacting a third party, a company can receive the money it is already owed, rather than taking a loan from the bank. A business should weigh the pros and cons of taking on more debt as opposed to getting the money it has earned when considering receivables financing.

As an added bonus, a company may be free from some of the constraints associated with a traditional loan. A bank loan oftentimes requires a company to give up some control. That is because a traditional loan differs from from receivables financing by adding debt to a company. A bank has to ensure that it can make a profit on the money it loans out, so it can require an option to assume some ownership in a company should the business not be able to pay back the loan. Because receivables financing requires a business to use the money it already made rather than take additional money from a bank, it can be a financially smarter mover from some companies.

A business that needs money should consider the advantages and disadvantages of using accounts receivable financing.