In today’s post, we compare two basic concepts any business owner must be familiar with: accounts receivable and cash. Keep reading to learn the differences between these assets and discover how to best use each of them.
What Are Accounts Receivable?
Accounts receivable (often referred to as AR, or just “receivables”), are the funds that your customers owe to your company for products or services for which your company has generated an invoice.
Accounts receivable represent money that your company will get in the short term (usually within 30 to 90 days).
The opposite of accounts receivable is accounts payable, which refers to the amount of money your business owes to your creditors.
What Is Cash?
At its most basic, cash is physical money, in other words, money you can touch and carry around, like paper notes or coins.
However, in some cases, the term “cash” is also used for things that can be easily converted into physical money, like bank accounts or checks. Assets that can be easily turned into cash are known as “liquid assets.”
The term “cash flow,” on the other hand, refers to the amount of cash that goes into and out of your company.
A company has a positive cash flow when it has a lot of liquid assets. Having a positive cash flow is essential because it allows you to:
- Pay expenses
- Settle debts
- Plan for the future
- Seize business opportunities
Accounts Receivable vs Cash
You may be familiar with the old expression “cash is king.”
Simply put, this means that while accounts receivable are good, having cash in hand is even better.
Here it’s important to note that accounts receivable are technically considered cash. After all, you have the legal right to collect them from your clients and turn them into cash.
In reality, however, things are a little more complicated.
In real life, invoices often go uncollected for a variety of reasons. Plus, depending on the terms a company has extended to its clients, it may have to wait up to 90 days to turn certain invoices into cash.
Solving the Accounts Receivable vs Cash Problem
So, to recap: cash is a vital element of any company. And while accounts receivable are technically considered cash, they are not as “liquid” as you may expect.
To put it another way, you can’t always turn your accounts receivable into cash as fast as you’d like.
Luckily, there’s a solution: factoring of accounts receivable.
When you factor your receivables, you sell them to a company commonly known as factor. The factor pays you upfront, eliminating the need to wait 30 to 90 days to get cash, and then proceeds to collect the invoice from your customer in exchange for a small fee.
And things get even better if you choose non-recourse factoring. In this type of factoring, you’re not responsible for any invoices that go uncollected. Yes, you read that right: with non-recourse factoring, the factor absorbs the risk of non-payment — it doesn’t get more convenient than this!
ACS Factors: We Turn Your Invoices Into Cash
We are a Factoring company located in Upland, California, with many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.
Contact us today by email (firstname.lastname@example.org) telephone (909-946-5599), or through our social media accounts on Facebook, Twitter, and YouTube, and start enjoying the convenience of converting your accounts receivable into cash today!