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Accounts Receivable Financing

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What is Accounts Receivable Financing?

It is an asset-based financing arrangement which allows businesses to get early payment on their unpaid invoices. With accounts receivable financing, a business receives early payment by providing its unpaid invoices to a funder in return for a fee. There are three basic types of receivable finance:

Asset-Based Lending Asset-Based Lending:

Asset-based lending, also called a business line of credit or commercial finance, is secured by a collateral or balance sheet asset and carries significant fees. Asset=based lending provides businesses with more credit availability and flexibility to achieve their goals.

Traditional Factoring Traditional Factoring:

Traditional factoring, also called non-recourse factoring, provides continued protection to businesses from the credit risk of their account debtors. In this arrangement, the initial payment received is less than the full amount of receivable. It allows businesses to choose which receivables to trade, but carries high fees with smaller credit lines.

Selective Receivables Finance Selective Receivables Finance:

It is a new form of receivables finance which allows businesses to choose which 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.

How Does Factoring Work?

Factoring, also knows as “accounts receivable financing” in some industries, is a process in which a company sells its unpaid invoices, or receivables, to a financial company called a “factor.” After receiving the invoices, factor collects the payment from the business’s customers on their behalf.

Most businesses opt for factoring because they need cash quickly on their receivables rather waiting the long days it often takes a customer to pay. With the help of factoring, a business can easily pay for expenses and build cash flow.

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When Should You Use Accounts
Receivable Factoring?

There’s a saying “it takes money to make money.” In order to fund your business growth you need cash, and factoring is one way you can get cash quickly for growth.

Factoring receivables companies approve accounts in as little as 24 hours, and you will get the funding on the same day. Factoring your unpaid invoices can get you cash when you have a cash crunch.

With factoring, a business can get cash even with bad credit or when you don’t qualify for a bank loan. Since it is based on your customers’ credit – not on your credit or business history.

With factoring, a business can get cash even with bad credit or when you don’t qualify for a bank loan. Since it is based on your customers’ credit – not on your credit or business history.

How to Work with a Factoring Company?

Every factoring company takes into account every factor, especially fraud, when lending money to businesses. In order to get quick access to cash without incurring penalties, below are few things you need to keep in mind.

  • First things first, don’t factor invoices if customers whom you know will not repay. And if it’s a recourse factor, you will have to pay off all the invoices and fees eventually.
  • After factoring your invoices if you find out a customer will pay late, tell your factor beforehand. This will strengthen your relationship with the factor and they will be more likely to work with you.
  • Last but not least, stay attentive to your factor notifications. A good factor will warn you when there’s an issues like a late payment, or when they’re unable to fund you due to a bank issue.
Accounts Receivable Financing

Why Accounts Receivable Financing Is a Better Alternative?

  • It saves you time with less paperwork
  • Get cash in your bank account within 24 hours
  • Bad credit or no credit is acceptable
  • Factoring is based on sales, not on your company’s current cash
  • 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
  • It increases your credit score
  • Free back-office support, including managing collections from your customers
  • Customized funding option when you need necessary capital
  • Scalability gets you more funding as your receivables grow
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Benefits of Accounts Receivable Financing is

  • Get Funding 24 hours from receipt of invoice!
  • Both Full-Recourse & Non-Recourse programs
  • Advance Rates up to 100%
  • No monthly or invoice minimums
  • Factoring Fees as low as 1.5%
  • No up-front fees or hidden fees
  • Daily release of your collected Reserves
  • Credit Lines starting at $5,000 & up to $10 Million
  • No Financials - No monthly minimums - No invoice minimums
  • Customer referrals upon your request
  • DAILY SETTLEMENT of your Reserve Account giving you maximum cash flow (most Factors release your reserve only once or twice per month)
Who Can Use Factoring?

Every business from startup to the Fortune 500 can use invoice factoring. The most common industries that use factoring are:

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What is the Difference Between Recourse and Non-Recourse Factoring?

In Recourse factoring arrangement, a business sells its unpaid invoices to factor with the understanding that if invoices go uncollected, the business will cover the cost. This factoring arrangement is usually affordable because the business is ready to take the risk involved in the transaction.

In a non-recourse factoring arrangement, the factor takes up all of the credit risks involved in collecting the outstanding invoices. If a customer defaults or pay late, any losses will be bear by the factor, leaving the business unharmed.

Is A/R Financing the Right Funding Option for Your Small Business?

Every business is unique and have different working capital requirements. Our experienced financial advisors will work with you to understand your unique needs and suggest a customized accounts receivable financing solution that best fits your business and cash flow needs.