This means the business s working capital is required only for 17 days for a given transaction regardless how long the accounts receivable is outstanding. On the downside, the total length of the transaction is about 7 days longer on average because it takes some time for the Accounts Receivable Financing Company to rebate the balance of the funds to the business. The following chart and table summarizes working capital savings mechanism for the strategy. Therefore, the business has a choice of where else to use the funds, because the funds are not required for this transaction. Using the funds for one or more transactions will yield higher profitability for the business, however, the business can itself determine what is best for the business.
Business executives thrive on having extra funds available.
The table below summarizes the investment in working capital and sales revenue streams, along with the timing, for this strategy. The new working capital requirement value represents the new base capital obligation for this strategy. The new return on capital ratio and the internal rate of return values represents the profitability of this business transaction. The ratio and the IRR percentage can be used to compare this strategy with other strategies. The working capital reduction is assumed to be available to support other transactions.