Anticipation of receivables: what is it and how to do it?
The anticipation of receivables helps companies to guarantee immediate liquidity, a relief in several situations. Check details and advantages of the operation.
The prepayment of receivables is a practice used by several companies, which carry out the prepayment of receipts of money in a simple and fast way. The strategy is used to maintain sustainable cash flow and guarantee immediate liquidity, which can generate relief on many occasions.
Continue reading and understand more about the subjects, in addition to discovering the advantages of making advance payments on receivables.
What is prepayment of receivables?
Simply put, prepayment – or advance payment – of receivables is to anticipate future cash. It means transforming bills of sale on installments, sales in installments on the credit card or even post-dated checks from customers into working capital so that current accounts can be paid off.
Assuming you have a business and make sales on your credit card in ten installments, this installment may result in a gap in your cash flow and leave you with no working capital to pay the company’s recurrences in that period.
With the anticipation of receivables, you can obtain all the installments paid by the customer at once and settle pending accounts.
On several occasions, it may happen that an emergency occurs and the business does not have enough cash to pay the payments. Another example may even involve restocking.
Therefore, this resource must be used strategically to avoid more serious financial problems, such as debt generation.
Advantages of anticipating receivables
To anticipate receivables, the company assigns the debt to a financial institution, which performs a credit analysis and stipulates an interest rate for the operation. The advance of receivables can be advantageous for the company for several reasons. Let’s see some advantages of this modality.
Covers contingencies
If an unforeseen event arises and your company needs to deal with unexpected problems that can directly affect your cash flow, this modality can be a good option, as you can receive amounts in advance that are already yours and that will help you balance the business.
Avoid loans
By anticipating receivables, the company does not need to resort to loans to gain access to financial resources. As the operation involves the sale of debt, the interest is lower than the rates practiced in conventional loans.
Furthermore, the anticipation of receivables does not require additional guarantees, such as real estate or vehicles, which makes the operation simpler and faster.
Facilitates negotiations
By having financial resources available, the company can negotiate better payment terms with its suppliers. The anticipation of receivables allows the company to have more flexibility to negotiate terms and discounts, which can result in savings of resources in the long term.
Maintain the financial health of your business
By anticipating receivables, the company manages to keep its financial health up to date, avoiding delays and defaults. The operation allows the company to have more predictability in relation to its cash flow, which is fundamental for strategic planning and business growth.
How does prepayment of receivables work?
The anticipation of receivables can be done in three ways, namely: banks, Credit Rights Investment Fund (FIDCS) and factoring. Among the available options, it is necessary to analyze fees and interest, namely:
- Banks: competitive rates with more bureaucracy;
- FIDCS: lower fees, faster receipt and IOF exemption;
- Factoring: Higher fees and less bureaucracy than other options.
To understand how prepayment of receivables works, it is important to follow some guidelines. Check below the main steps of the process.
- Identification of forward sales : the first step is to identify forward sales. This can be done through an accounts receivable report, which shows credit sales that have not yet been paid.
- Selection of sales : the company must select the sales it wants to anticipate, taking into account its working capital needs and the interest rate that will be charged for the operation. It is important to evaluate the value of the sale, the payment period and the customer profile.
- Negotiation with the financial institution : after selecting the sales that it wants to anticipate, the company must negotiate with the financial institution that will carry out the operation. In this negotiation, interest rates and deadlines for prepayment of receivables will be defined.
- Assignment of receivables : once the conditions for prepayment of receivables have been agreed, the company assigns its credit rights to the financial institution. This means that the financial institution becomes the debt holder of the company’s client.
- Receipt of funds : after the assignment of receivables, the financial institution pays the funds to the company. The amount received corresponds to the nominal value of the installment sale, minus interest rates and charges.
- Debt payment : when the company’s customer pays the debt, the financial institution receives the corresponding amount and transfers the remaining amount to the company. In general, the financial institution charges a service fee for managing prepaid receivables.
