How Accounts Receivable Financing Works

The accounts receivable financing process involves a combination of all of the concepts and technologies that make up the accounts receivable loan and financial planning process. The end result is the account receivable financing contract, which establishes the terms under which the client receives money to pay the finance charges on the agreed invoice.


The first concept of financial planning is actually called an obligation. An obligation is something you agree to do. An obligation can be a specific price for goods or services, or it can be any kind of payment required by the terms of your agreement.


You will also find the phrase "that obligation is to be paid in full" on contracts. This means that the amount you owe has to be paid back, even if you don't use the product or service at all. The contract may state, "no payment is to be made without first paying the entire invoice."


This means that when the product or service isn't used, you will still be liable for the bill. In this case, the contract will state, "and no bill will be made until the total invoice has been paid." That is a form of credit.


This type of obligation must be written down in writing, or you can also include a receipt or a tracking number to document the obligation. In many cases, you will be required to obtain credit or a debit card from the buyer. Credit cards can be used as you would a check.


Once the payment obligation is written down, you then create the invoice. This invoice lists the name of the buyer, the quantity of goods, the date the sale is completed, and the payment due. Sometimes you can specify what date the payment is due, but this will depend on how far along the product is sold.


If you are selling a book or some other collectible item, you might want to state, "Payment is due at the conclusion of sales." There will be some limitations on the amount of time a buyer has to pay, such as if the item isn't sold by a certain time. If you have done this, you will have to keep track of the dates when payments are due.


Next, you'll need to create a loan for the product. This is usually done through either a short term financing loan or a long term loan. You then need to create the closing statements, which list all the amounts paid on the invoice, the accounts receivable owed, and whether or not it has been paid.

If it has been paid, you need to state whether or not the buyer has taken the credit card out. In this case, you have entered into a contract with the buyer that will require the money to be held in reserve until the invoice is fully paid.


Finally, you will enter into a transaction code with the lender. You should have a closing statement for the loan; however, you will need to enter the transfer authorization and the transfer data.


Financial planning, to me, is a way to find the best financing for your business. The initial step is to create an agreement with the buyer. The next step is to gather data to make sure your accounting processes are working.