What Is an Accounts Receivable Line of Credit?
What Is an Accounts Receivable Line of Credit?
A way to make your cash flow better is obtaining financing backed by accounts receivable. Your receivables can also be used as collateral for many solutions like asset-based loans, line of credit business, and accounts receivable factoring.
A business concerned line of credit is best suited for mature companies, but asset-based loans and factoring can also be used by SMBs. If you own a mature company, then one solution that lets you finance your receivables is a business line of credit. A LOC gives you access to funds up to a set limit. Your business can draw money when required, up to the said limit. The credit line can be paid down as and after business cash flow improves.
Some credit lines can be secured only by invoices due from debtors, but these often require more collateral as the value of accounts receivable changes frequently and could go down the credit limit. Lenders and banks wish to avoid this drop in the value of accounts receivable, as it would leave these institutions under-collateralized.
