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.
Related or Semi-related Video
Finance: What is Account Receivable Turn...20 Views
finance a la shmoop. what does per-capita mean? well there's poor capita yeah this
guy, how would you like to be named capita and then there's per capita which [man sits under a tree]
just means well technically per head. yep comes from Latin like oh so many
things salsa dressing and dancing among others, the word decapitation comes to [dancing feet]
mind. like what happens when those flying human taxi drones get too far to the
left or when King Henry got tired of a wife. so if that happened often it had [helicopter prop]
throw off the per capita calculations. and same deal if we suddenly had a lot
of two-headed people being born like the aliens in men in black and whole bunch
other Hollywood movies. per capita is a useful metric in a bunch of financial
calculations. a common set is GDP or gross domestic product per capita .like
if you have a ton of GDP say ten trillion dollars from your country [100 dollar bill]
whateverstan, if you only have a million people that's a ton of production
productivity. but if you're say China with well over a billion people well
then it's a much lower GDP per capita. the calculations get quoted when talking
about things like cell phone monthly subscriptions, computer ownership or [people crowd around a cell phone]
particularly rollicking house parties. so yeah the notion of per capita is pretty
important but don't stress if you're not an expert yet. it's a nothing to lose
your head over. [man carries head]
Up Next
What are accounts receivable and accounts payable? Accounts receivable and payable are figures that show up on a company’s balance sheet. Account...
What is a balance sheet? A balance sheet is a financial document that public corporations are required to use. It shows their assets and liabilitie...
What is an income statement? Income statements are important financial documents that all companies keep to track profitability. It shows figures t...
What is cash flow vs. earnings? Earnings are how much a company has made in profit after they have paid things like taxes and operating expenses. C...