Clean Definition of Accounts Receivable Financing and SEP IRA Rules
It may benefit you to learn a couple aspects of the financial world that can be valuable for a small business owner or entrepreneur like you. These topics are the SEP IRA plan and accounts receivable financing.
Although these topics are not the most complicated in the world, it may take some time to get a good grasp over them because they are not too common. In addition, there is not too much expert literature on these topics online. This is my attempt to define each in as simple terms I can.
Business accounts receivable factoring, or financing as referred to by many is simply the selling of a small business' receivables in exchange for liquoid cash. Now normally, a small business typically generates receivables by selling goods and services and then bills a customer. The amount to be collected from the customer later the receivable. Receivables financing is the act of trading these in exchange for cash payment today.
You might be wondering why a business may decide to factor its receivables? There are several reasons. A small business often does this because it needs the money upfront. This money can be used for the business' working capital needs, or to expand. For example, hire more staff or open more locations.
Another topic I want to discuss is the SEP IRA plan. This is a retirement plan which small business owners can set up for its owners and staff. Large corporation typically offer a 401k retirement plan, which is a vehicle within which employees can put away savings tax free for retirement. Because smaller businesses do not offer this kind of a plan, the law allows them to establish a smaller, self directed SEP Plan where the employees and owners can save for retirement.
So these are the two financial topics I wanted to explain. I hope I have explained them as clearly as I could. I am hoping you felt this article was informative. If so, kindly share with those you know who can benefit from it.
Learn more about a SEP IRA account here. Learn more about accounts receivable financing here.