In your day-to-day business, have you ever felt that it would be very useful to be able to receive your customers in advance to meet certain commitments?
Well, you should know that this is possible with the anticipation of receivables, a smart financial strategy that allows you to receive amounts that would otherwise be paid in installments in advance.
In this article, we will talk about what receivables anticipation is, how it works and what its main advantages are.
You will discover how this practice can be advantageous for both small businesses and large corporations. Therefore, if you want to ensure solid and efficient financial management, continue reading!
What is receivables anticipation?
Objectively, the anticipation of receivables is a financial operation in which a company sells to third parties the right to receive the amounts from its sales on credit.
Imagine that your company has just sold several products to a customer, but he will only pay in 90 days.
However, you need the money immediately to pay suppliers, salaries and other commitments.
That’s where receivables anticipation comes in: you can transfer this right to receive the amount from your customer to a financial institution and in return you receive immediate payment.
The idea is to advance the receipt of future amounts, such as installments, checks, invoices and payment slips.
This practice is widely used to stabilize cash flow , but it can also be used for business consolidation and expansion purposes.
How receivables anticipation works
Anticipating receivables is an easy and quick process.
- Credit Analysis: the financial institution assesses the financial health of the customer who generated the receivable to check whether there are risks in the operation.
- Contracting: once the credit analysis has been approved, the operation is contracted, establishing the interest rates and payment terms.
- Transfer of receivables: the right to receive the amount is transferred to the financial institution in exchange for an advance payment.
- Receipt of the amount: the company that made the advance payment receives the amount advanced, minus the agreed interest rates.
By doing this, the company has quick access to the money it needs and avoids cash flow problems, keeping its operations running smoothly.
Anticipation of receivables: main advantages
Now that you have a better understanding of what receivables anticipation is, let’s highlight its main advantages:
Well-defined interest rates
Unlike other forms of credit, the anticipation of receivables has well-defined interest rates, which facilitates financial planning.
At the time of signing, you know exactly how much interest will be deducted from your advance payment. There are no unpleasant surprises.
Avoid loans
Anticipating receivables is an alternative to bank loans, which can sometimes involve higher interest rates and more bureaucratic procedures.
Therefore, opting for the anticipation of receivables is a way to avoid the accumulation of debts.
Covers unforeseen events
During times of adversity, a money reserve is key. But because a company may be affected by so many elements, such as seasonality, economic downturn and a rise in raw materials, for instance, it is impossible to rely on this reserve in all cases.
In these cases, the anticipation of receivables allows the company to have access to money from its future sales to deal with unexpected situations without going into debt.
How to Advance Receivables?
Carrying out the receivables anticipation process is simple and easy. Just follow the steps below:
- Organize your sales: keep detailed control of your installment sales and identify which receivables are candidates for advance payment.
- Choose a financial institution: research and choose a reliable institution or company specializing in receivables anticipation with good conditions.
- Perform the credit analysis: prepare for the credit analysis by providing all the requested information and documents.
- Analyze rates and conditions: evaluate interest rates and payment terms to obtain the best possible conditions.
- Complete the contract: after approval of the credit analysis and negotiation of conditions, complete the contract and receive the advance payment.
Always remember to check the rates and conditions offered by different institutions, comparing them to find the most advantageous option for your company.
Receivables anticipation VS loan anticipation
You may be wondering what the difference is between receivables anticipation and a traditional loan . Let us clear up that doubt!
The anticipation of receivables is a credit operation in which the company advances the receipt of amounts that it already has to receive.
A loan is a form of credit in which a company requests a loaned amount of money, committing to return it with interest within a set period.
The main difference is that, in the anticipation of receivables, the company uses its own resources, that is, the money that is already its, would only be received in the future.
Both options result in the release of an amount for the company to use immediately and both can be advantageous, depending on the company’s situation.
For a company that has no receivables, a loan can be a good solution to expand the business.
When there is the option of anticipating future payments, there is the advantage of lower interest rates and reduced bureaucracy.
When is it interesting to use receivables anticipation?
Despite being a very versatile credit option, for its use to be truly worthwhile, it is necessary to understand the situations in which it is most appropriate. Let’s see:
Need for working capital
If your company needs working capital to maintain its operations, pay suppliers, employees or invest in new projects, anticipating receivables can be an excellent option to obtain resources quickly and without complications.
Take advantage of opportunities
At times, unique business opportunities may arise, such as purchasing raw materials at reduced prices, purchasing a property or the possibility of closing a large sale.
In these cases, receivables anticipation offers the chance to take advantage of these opportunities without wasting time waiting for payments on time.
Balancing cash flow
Companies that have seasonal revenues or sales with extended terms sometimes face cash flow challenges.
Anticipating receivables can help balance this situation and ensure that commitments are met at any time of the year.
Avoid default problems
If your company is facing an increase in default rates, anticipating receivables is a strategy to transfer this risk to the financial institution and guarantee the receipt of amounts.
Growth and expansion
Companies looking to grow and expand their operations often need additional resources.
Anticipating receivables is a quick and affordable way to finance this growth.
If you want to improve cash flow, take advantage of opportunities and avoid debt in your company, be sure to consider this strategy.