Is Accounts Receivable Financing Right for Your Business?

by Crestmark 10. April 2013 06:44

 

When it comes to financing your business, it can be challenging to determine which type of financing is right for your particular business in your particular situation. Accounts Receivable (A/R) financing allows you to borrow money against your existing invoices – this can be a great option, but how do you know if it’s right for you?

Here are six indicators that will help you determine if accounts receivable financing is the best option for you:

1. Inability to Obtain Traditional Lending – To be considered for a loan, lenders evaluate the kind of risks your company takes on in order to approve your loan. New businesses can have a hard time getting quality loan rates because the risk to the bank is higher, and the lack of collateral allowance often stands in the way of being approved. However, if you find your business turned down by traditional lenders, A/R financing could be an option.

2. Quick Growth – Quick growth doesn’t seem like bad news, but if it is an unanticipated surge in sales, you may find yourself struggling to catch your breath. This unexpected growth expansion can require extra supplies for manufacturing, more staff, and often more money to pay the bills. Unfortunately these frequently occur well before your company receives income from the growth.  If this is the case, you may be a good candidate for an A/R loan.

3. Expanded Offerings – Introducing a new product line, service, or other new branch of your business can be very exciting, but it also comes with a unique set of challenges. There’s often a need to invest in new equipment, personnel, or other items necessary to get this part of your business up and running.  In this scenario, A/R financing may be a good option.

4. Seasonal Sales – While many businesses experience relatively stable sales throughout the year, others can be very seasonal. High demand for seasonal merchandise or expected participation in upcoming events can cause sales to skyrocket, in which case, accounts receivable financing might suit you.

5. Strong Customers - Lenders are more likely to offer accounts receivable financing to companies with paying customers whose credit is in good standing.  While overdue accounts can be used as collateral, some lenders prefer to deal with customers that are less than 90 days late. Some lenders, including  here at Crestmark, provide invoice collection efforts and client credit reviews as part of their services.

6. Net Payment Time - Accounts receivable financing might be right for your business if your invoices request payment within 30 or 60 days. You could be a good candidate if you only need a quick infusion of money before the payments are due to bridge the gap between accounts payable and accounts receivable.

If your business is currently experiencing any/all of the items listed above, AR financing may be a great option.  For additional information, and to speak with a lending expert in regards to your particular business, give us a call at 888.999.8050.

Has your business run into any of these circumstances? Has accounts receivable financing worked for you?

 

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Accounts Receivable Financing

Three Ways To Cover Payroll Funding

by Crestmark 8. October 2012 10:03

Payroll funding can be one of the biggest financial obligations that your business faces. Depending on your size and your industry, payroll financing may be one of your biggest expenses alongside materials. But how do you cover it? And what can you do if your staff frequently changes? The answer may be a line of credit. There are three major types that offer the flexible kind of funding that works best for payroll.

Accounts Receivable Financing

A/R financing, also known as a ledgered line of credit, is a flexible option that works for a wide variety of businesses. Every invoice you issue is recorded and funding is issued based on that. This structure means that it's a highly adaptable form of credit, but it also means that it can exactly match your current needs. As you issue more invoices, you're going to need to spend more to finance them – and accounts receivable financing provides the funds you need.

Invoice Factoring

Factoring offers flexible financing that functions very similarly to a line of credit but is not technically considered one. Under an invoice factoring agreement Crestmark structures your funding facility based on accounts receivable/invoices. The invoices are purchased at a discount to provide immediate availability of funds to your company.

Asset Based Lending

This form of line of credit is secured based on inventory, invoices, or a combination of the two. The amount available through a line of credit varies according to how much inventory is owned or how many invoices are issued. The main difference between asset-based lending and accounts receivable financing is how much funding is issued. With ABL, assets (including invoices) are reported in batches, whereas accounts receivable financing will involve submitting each invoice individually. 

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Alternatives To Term Loans

by Crestmark 8. May 2012 04:57

There are a number of reasons why a company may not want to take a term loan. They may want to pledge personal collateral, find it difficult to obtain this more traditional form of financing, they may simply not want to accept the terms that are available, or they may simply prefer these non-traditional financing options as a way to meet their financing needs. Whatever your situation, if you're looking outside the term loan box, you should look at these potential solutions.

Accounts Receivable Financing

A/R financing is a flexible line of credit solution available to most businesses. This type of financing leverages the money you are due to receive from invoices you have sent to your customers. A/R financing helps bridge the gap between your cost of sales  and when you get paid for your goods or services.

Asset Based Lending

This line of credit is secured by an asset that your business currently holds. Asset based lending is a line of credit, meaning that you can use as much or as little of your potential credit as you select up to the value of the collateral pledged. You can change it monthly, weekly, or even daily depending on your needs.

Factoring

In this type of financing, a third party factor actually purchases your unpaid invoices. You receive a portion of the value upfront, with the rest of it being delivered, less an administrative fee, when your client makes good on the debt. Factoring may be traditional, where the factor fully purchases the invoice and assumes both the credit risk and responsibility for collection of the receivable. Or  on a recourse basis where the receivable is sold back to the seller after a certain period of time elapses. Unlike other types of financing there are less restrictive covenants inherent in factoring transactions.

 

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Discount Vs. Traditional Accounts Receivable Financing

by Crestmark 25. April 2012 06:35

Accounts receivable financing is one option for businesses whose working capital needs exceed what can be obtained through traditional term loans from conventional banks. Whether your enterprise is new, your funding demands unusual, or you're simply having trouble getting credit in a tight economy, accounts receivable financing can be a good choice. But what kind best suits your business? There are two main options: traditional A/R financing or discount financing.

Traditional, Non-Recourse Accounts Receivable Financing

Traditional A/R financing begins with your potential financier checking your customer's credit. This should happen before you invoice to determine approval. Once your client is approved, the financier (known in this case as the factor) will purchase the invoice from you. In this case, the factor actually assumes complete responsibility for the invoice because they now own it. That includes ensuring payment even if your customer is unable to pay.

Discount, Recourse Factoring

Discount factoring is similar to traditional accounts receivable financing. It too involves borrowing against unpaid invoices, but in this situation the factor does not actually purchase the accounts or assume liability for them. Advantages of this system include lower fees and in some cases faster turnaround and greater availability of funds.

Both of these options allow for flexibility and funding that might not otherwise be available. Both also involve your factor working directly with your client, a proven system that shortens the time between invoice and receipt of payment.

To learn more about accounts receivable financing, contact one of Crestmark's experts. We can help you understand the details and differences between discount/recourse and traditional/non-recourse factoring and select the right option for your business.   

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Invoice Factoring: A Short Introduction

by Crestmark 18. April 2012 12:22

Invoice factoring allows businesses to collect cash from invoices faster. In some cases, companies may even be able to recover funds from a transaction even if the buyer becomes unable to pay. The premise behind invoice factoring is that accounts receivable can actually be sold. The company that purchases your accounts receivable is known as a factor, hence the term invoice factoring.

There are two types of invoice factoring, The first, non-recourse, involves the complete sale of the invoices. In this situation, the company assumes all responsibilities related to the invoice. You receive cash immediately in exchange for this sale. One of the advantages of this option is that the factor may actually take on the risk of non-payment, meaning that you receive cash even if your client can never meet the bill.

Recourse factoring is the other type of invoice factoring. Also known as discount factoring, it provides much of the same financing options as non-recourse, typically at less of a cost. Both types of factoring require an exchange of information and discussion before approval. You will need to provide information about your top customers to the factor and provide a figure for how much funding you need from each.

One of the biggest benefits that applies to both non-recourse and recourse factoring is that they are flexible. You can finance as much or as little of your accounts receivable as permitted based on client credit and as needed for your business in its current state. This inherent adjustability is rare in term loans and more rigid financial instruments.

Crestmark is proud to provide invoice factoring for a variety of industries. If you would like to learn more about how this non-traditional financing technique can help you make payroll, fund an expansion, or just keep your business running smoothly day to day, our staff will be happy to talk with you. 

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