Free Up Working Capital with Accounts Receivable Financing
- Advance amount up to 80% of receivables
- Factor Rate starting @ 1.02
- Funding as quick as same day
What is Accounts Receivable (AR) Financing?
With accounts receivable financing, you can receive early payment on your outstanding invoices. The accounts receivable company provides you with the capital against your outstanding invoices at a fee.
Technically, accounts receivable financing is not a small business loan, but they share some features. The primary difference between the two is, in account receivable financing as long as the customer is clearing out the unpaid invoices you don’t have to pay the lender, on the other hand when borrowing a small business loan you are obligated to make the payments on time. When your small business needs a fast infusion of capital, accounts receivable financing can help.
Types of Receivables Financing
Asset-based lending also called business lines of credit or traditional commercial lending is an on-balance sheet technique with a significant fee. Asset-based lending provides businesses with more credit availability to achieve their goals by freeing the capital stuck due to outstanding invoices.
Traditional factoring, also called non-recourse factoring, allows businesses to sell their receivables to a funder – but the initial payment received is less than the full amount of the receivable. It allows businesses to choose which receivables to trade but carries high fees with smaller credit lines.
it’s a new form of receivables financing that allows businesses to choose invoices they would like to advance and when they would like to fund them for early payment. This type of finance has lower rates and does not influence debt ratios or other unpaid credit lines because it stays off the balance sheet.
How Accounts Receivable Financing Works?
It allows businesses to receive capital while waiting for their invoices to get paid. After you invoice your customer, you provide the funder with an invoice copy along with supporting documentation. The funder will advance you up to 80% of the eligible invoice to you. This is how it works at Merchant Advisors. Our loan specialist follows up to make sure your customer pays according to your invoice terms. After receiving your customer payment, we’ll release the remaining 20% to you, after deducting our administrative fee.
Our automated accounts receivable financing process allows you to focus on your business, with shorter payment turnaround time, better cash flow and lower interest expense for your business - allowing you to keep payments current, informed on impaired goods, lost shipments, or disputed invoices.
- Less paperwork requirement
- Cash in your bank account within 24 hours
- Bad Credit is not a problem
- Approval is based on invoice quality, not on your company’s current financial standing
- It is based on customers’ credit quality, and not on your credit or business history
- Since it’s not a loan, you do not incur debt
- Opportunity to improve your credit score
- Administrative support with managing collections from your customers
- Customized funding option when you need the necessary capital
Apply Now To See How You Can Grow With AR Financing
How to Qualify for Accounts Receivables Funding
The Difference between Accounts Receivable Financing and Invoice Factoring
The terms ‘invoice factoring’ and ‘accounts receivable financing’ are often used interchangeably. However, they are two different funding products with a few small but fundamental differences. The main difference is that accounts receivable funders advance, and Invoice factors buy.
Accounts Receivable Financing
In accounts receivable financing, the lending company offers advance by accepting invoices as collateral. The funder advances up to 80% to 90% of the funds based on your invoices, and you are responsible for the relationship between you and your customers. You have to remind your customers to pay back, persistently. Once the lender has received your payment, then he will deduct the fee and the amount left from your standing balance. If your customers are outstanding and somehow they have managed to clear out pending invoices before time, you can pay off the debt earlier.
In invoice factoring, the factor purchases invoice at a discounted rate and accept the responsibility of collecting payments from your customers. If a customer fails to make the payment on time, lenders will face the consequences. The benefit of AR factoring is that you don’t have to follow up with the customers to make the payment on time. Since there’s an immense risk involved, the charges are slightly higher as compared to receivable financing.
How Much Does Accounts Receivable Financing Cost?
The cost of accounts receivables financing depends upon three things:
- The time your customers take to pay
- The lender’s fees
- The quoted factor rate
Here is an accounts receivable financing example to help you understand the cost structure
Accounts Receivable Financing Example
Allan’s Retail Shop receives an 80% advance for an invoice totaling $50,000. The invoice amount is $50,000 with an advance amount of $40,000 and the reserve amount is $10,000
The accounts receivable funder charges a weekly factor fee of 1.02% until the invoice is paid in full. The factoring fee per week is $510
Allan’s customer takes a total of 9 weeks to repay the invoice. The cost of Financing is $4,590 and the rebate owed to Allan’s Retail Shop is $5,410
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When You Need to Use Accounts Receivable Financing?
Accounts receivable financing aid in managing small business expenses while you wait for your outstanding payments from your customers. Here are a few reasons when you might need to use accounts receivable financing:
• During seasonal lulls, you need capital to sustain your business. While you wait for your outstanding invoices. accounts receivable financing helps you tide over.
• An opportunity might arise that can help your business grows. When the capital is short, accounts receivable financing can help you with the money to leverage on the business’s opportunities.
• Sometimes an emergency happens, and it can cause a considerable gap in your cash flow, especially when you’re waiting from your customers to pay. Accounts receivable financing can help fill that gap, enabling you to tackle any emergency expenses.
• When a huge amount of capital is tied up in your outstanding invoices, accounts receivable financing can help unlock that capital, when you need it the most.
Why Merchant Advisors?
At Merchant Advisors, we understand your unique needs and provide customized small business loans to keep your restaurant business progressing.
- Experience in the Industry
Helping small business owners since 1997
- Trusted by Small Businesses
Billions in funding to thousands of businesses nationwide
- Personalized Financing
Customized financing solutions to small business needs
- Quick Application Process
No cost, no-obligation application with funding in 24 hours
- Your Personal Loan Experts
Experienced loan experts helping you succeed
- Save Time and Money
Let’s be your helping hand so you can focus on growing your small business