Accounts Receivable Financing

You make unicycles. You've sold 800 of them to the Giraffe Watchers Club of the Serengeti. They owe you a million bucks. Unfortunately, they won't be back from safari for a month, assuming the lions don't get to them first. But you need that million bucks today, so you can build out the unicycle order for The Congressional Clown Club, otherwise known as Congress.

To get that money, you can apply for accounts receivable financing, wherein you pledge as collateral the promise of payment of that million bucks from the Giraffe Watchers Club, owed 27 days from now. You can take the money to a bank, or to what is called a factor, who will then gladly pay you something like $970,000 today in return for your million bucks I.O.U. in about a month. The factor takes on the risk of the Giraffe Watchers Club becoming lion dinner and not paying, and in return, if you do the advanced math here, that factor makes 3% interest for that one month of risk, or an annualized return of 12 x 3% = 36%. As long as those owing their bills actually pay their bills, the business of being an accounts receivable financier is enormously lucrative. You just have to stay away from the lions.