ADVANCE AGAINST COLLECTION Meaning and
Definition
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Advance against collection is a financial term that refers to a specific type of loan provided by financial institutions or lenders to businesses, where they advance funds against their accounts receivables. In simple terms, it is a short-term loan provided to a business against the future payments it expects to receive from its customers.
This type of loan is generally used by businesses to meet their immediate cash flow needs or to finance their working capital requirements. The lender evaluates the creditworthiness of the business and its customers before approving the loan. The amount of funds advanced is typically a percentage of the business's total accounts receivables.
Once the loan is approved, the lender collects the outstanding payments from the business's customers on behalf of the business. The collected funds are then used to repay the loan. The lender may charge interest and other fees for providing this service.
Advance against collection is beneficial for businesses that have a strong sales volume but face delays in receiving payments from their customers. It helps them bridge the gap between selling their products or services and actually receiving the payments, allowing them to continue their operations smoothly.
In summary, advance against collection is a short-term loan that businesses can obtain based on their accounts receivables. It helps businesses manage their cash flow effectively by providing them with immediate funds while they wait for their customers to make payments.
