| Investopedia: "Accounts Receivable (AR) is money that customers (individuals or corporations) owe a company in exchange for its goods or services. Accounts receivable usually come in the form of operating lines of credit, and are usually due within a relatively short time period. If a company has receivables, it means it has made the sale but has yet to collect the money from the purchaser. Most companies operate by allowing some portion of their sales to be on credit. These sales are usually to frequent customers, who are invoiced periodically, allowing them to avoid the hassle of physically making payments as each transaction occurs." (credit: investopedia.com) |
When a company grows quickly, it tends to outgrow its limited working capital. Factoring is a tool which provides the entrepreneur an opportunity to expand and speed cash flow. He does this by selling his receivables to the factor and drawing an advance prior to the customer making payment. This can speed cash flow by 30-60 days or more.
Regarding accounts receivable factoring, STAR allows an entrepreneur to focus on the running of his business rather than worry about financing daily cash needs. The factor relationship offers liquidity, and safety for a growing business. In addition, the entrepreneur can maintain a low overhead since he does not have to hire credit or collection personnel.
| Investorwords: "Accounts Receivable is money which is owed to a company by a customer for products and services provided on credit. This is treated as a current asset on a balance sheet. A specific sale is generally only treated as an account receivable after the customer is sent an invoice." (credit: investorwords.com) |
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