Working Capital Financing 101: Definition, Types & Tips
What exactly is working capital financing? What are the methods of financing working capital? We have the answers for you.
Receivables discounting is when you use your accounts receivable as collateral to borrow money.
The loan amount usually ranges between 80% and 95% of the receivables value, which you will pay back with interest and fees to the lender upon maturity.
In receivables discounting, you are not selling your accounts receivable. You simply use them to collateralize a loan. Therefore, you still own the receivables and are responsible for collecting payment from customers.
Here is an example of receivables discounting.
In this receivables discounting example, you will be given $20,000 x 85% = $17,000 upfront. This amount plus interest and fees will be repaid on or before due dates specified by the lender.
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What exactly is working capital financing? What are the methods of financing working capital? We have the answers for you.
Learn all about bank loans, the traditional method for companies to borrow money and access capital.