Optimize Cash Flow: Accelerate Growth with Accounts Receivable Financing"
Boost Your Cash Flow: Expedite Payments on Outstanding Invoices Today!
Accounts receivable financing results in a company receiving early payment on their outstanding invoices. A company using account receivable financing commits some, or all, of its outstanding invoices to a funder for early payment, in return for a fee.
Factoring companies
The process of account receivable financing is often known as factoring and the companies that focus on it may be called factoring companies.
Accounts receivable
Account receivables are assets equal to the outstanding balances of invoices billed to customers but not yet paid. Account receivables are reported on a company’s balance sheet as an asset, usually a current asset with invoice payment required within one year.
Ranges
A factoring advance line can average 80%-85% of the approved invoices, and the monthly cost can range from 1% of the outstanding invoices to the federal government to 2% of traditional B2B clients.
Time
The turnaround time for underwriting averages 2 weeks from all docs in to funding. Once the invoiced client is approved, and all docs are in, future invoices for that client can be approved and funded within 48 hours.
Advantages
Account receivable financing can enable a business owner instant access to cash without jumping through hoops or dealing with long waits associated with getting a business loan. When a company uses its account receivables for asset sales it does not have to worry about repayment schedules. When a company sells its account receivables it also does not have to worry about account receivable collections.
Disadvantages
Although accounts receivable financing offers a number of diverse advantages, it also can carry a negative connotation. In particular, accounts receivable financing can cost more than financing through traditional lenders, especially for companies perceived to have poor credit.
Underwriting
Factoring companies take several elements into consideration when determining whether to onboard a company onto its factoring platform. Furthermore, the terms of each deal and how much is offered in relation to accounts receivable balances will vary.
Accounts receivables owed by large companies or corporations may be more valuable than invoices owed by small companies or individuals. Similarly, newer invoices are usually preferred over older invoices.
Typically, the age of receivables will heavily influence the terms of a financing agreement with shorter term receivables leading to better terms and longer term or delinquent receivables potentially leading to lower financing amounts and lower principal to value ratios.
