subject: On How Receivables Can Actually Make Our Businesses More Profitable [print this page] On How Receivables Can Actually Make Our Businesses More Profitable
As business owners, our main objective is to do the business for profit. From the profits that we will derive from our business, we will be able to infuse funds that can be used as additional capital for future expansion or to sustain current operations. It is from profits wherein we derive the personal income that we will generate for ourselves and the salaries that we are to pay to our employees.
Unfortunately, we do not derive immediate profit all the time. There will always be times when receivables will be piling up. When that happens, the amount of readily available cash that can be used by the business is being reduced.
There is nothing really bad about receivables. In fact, receivables are good because they are already being considered as income for our business. The only twist is that they are still unrealized income, meaning the goods and services that our clients obtained from us will be paid in a much later time. Such a situation creates a problem for us and our business if things are not well-planned, especially the cash flow.
With receivables being a reality of business operations, entrepreneurs like us must counteract their possible effects. There is a way for us to convert receivables that we are supposed to receive in later on into quick cash that can be used to sustain the business. This way is called receivable financing.
In receivable financing, we are selling our business' receivables to a third party, called a factor, at a discounted price. The factor, upon paying us, will take over from there, collecting the receivables that our clients owed us. The good thing about this scheme is that the factor will not look on how strong and stable our businesses are before they buy our receivables but on the strength and stability of the clients that we have.
Although the amount that we are to receive after receivable financing will be less due to discounted prices, having that quick cash at our disposal will be very helpful. That quick cash can be used to make our businesses more profitable. Hence, the rejuvenating effect that additional capital coming from the quick cash derived from receivable financing will become lasting; ensuring that our businesses will be steady and we will continuously derive profit from them the way we expected them to perform.
