Accounts Receivable Financing

There are times in the life of any business where cash flow becomes a problem and operating capital is stretched to the limits. Accounts receivable financing, often referred to as factoring, is a relatively new concept that can assist businesses that sell on credit to commercial accounts. If your company meets the criteria and has need of immediate cash, this might be one option to explore.

Accounts Receivable are Hidden Assets
Accounts receivable hold a great deal of value since that money is due to your business. Although it may not seem like it at the moment, those accounts can be used as collateral to finance operating capital to use in the meantime until those accounts are paid in full. However, the only accounts receivable that qualify as collateral are those that are commercial accounts as opposed to personal lines of credit.

Accounts Receivable Financing is Not a Loan
One of the major benefits of accounts receivable financing is that it is not a loan but rather money drawn against what is owed to your business through commercial lines of credit. Financing is not difficult to procure and can be obtained in just a few business days. Your credit score does not play a role in qualifying for financing simply because accounts receivable financing is not a loan and as a result there are no monthly payments and it is easier to qualify as well.

Criteria for Eligibility
Actually eligibility is not determined on the strength of your credit score but rather on the credit score of those businesses that are in debt to you, in other words, the buyer. Since the financing you receive is based on the ability of your buyers to pay their debt, it is those businesses that will be scrutinized for creditworthiness. The final decision will not be made based on your tax returns or financials, but on the strength of those who are in debt to you.

Accounts Receivable Financing Entails Minimal Underwriting
Once your accounts receivable have been analyzed and you have been approved for financing there is a minimal amount of underwriting involved. Most often the process is so quick that you can receive initial funds within a matter of days as opposed to the weeks it would take to apply and be funded for a commercial loan.

Low Financing Rates
Accounts receivable financing carries significantly lower rates than a commercial loan as well. In fact the rates are so low that most often you will be charged between .75% and 1.75% for a thirty day period. It would be virtually impossible to even dream of getting a short term commercial loan for those rates which is why many businesses are turning to factoring when in need of immediate cash on hand.

What Types of Businesses Qualify for Factoring?
Basically, it depends on the financing company but the one requirement is that the accounts receivable to be financed need to be commercial accounts. The types of business aren’t as important as the types of accounts which are receivable. The invoice needs to be verifiable and signed off on by the debtor. Sales must be final with no disputes. Also, the product or service must be completely finalized and/or delivered. In other words, whether you own a janitorial service or a manufacturing plant, as long as your accounts receivable are commercial accounts then your business would qualify for accounts receivable financing.

Sometimes new businesses need expansion capital while other times established businesses are simply experiencing a lack of cash flow. In any event, accounts receivable financing provides a quick and easy way to raise funds based on accounts that are payable to your company.

Comments are closed.