How Accounts Receivable Financing Works
- How Accounts Receivable Financing Works
- What Are the Types of Accounts Receivable Financing?
- Advantages and Disadvantages Accounts Receivable Financing
- How to Apply for Accounts Receivable Financing
- Accounts Receivable Financing Companies
- Accounts Receivable Financing Frequently Asked Questions
- What is the difference between accounts receivable financing and factoring?
- Is accounts receivable an asset?
- What are the benefits of accounts receivable?
- Unlock the Cash Tied Up in Your Receivables
- Use the Month to Your Receivables
Small businesses can use accounts receivable finance to borrow cash for their operations and other needs while they wait for their invoices to be paid. The lender pays the company the remaining balance – minus the factoring fees – once the client has paid the invoice.
What Are the Types of Accounts Receivable Financing?
Factoring for Accounts Receivables comes in a variety of forms. Factoring is the most frequent type of accounts receivable financing used by small firms. It includes the borrower selling his or her receivables to a factoring company, who then sells them at a discounted rate.
Accounts Receivable Loans using Asset Backed Securities.
Advantages and Disadvantages Accounts Receivable Financing
In truth, every business financing option has its good and bad sides. Accounts receivable financing is no exception:
No Need for Collateral: It is a type of unsecured business financing option that does not require any collateral in the form of assets and guarantors.
Retain Ownership of Your Business: This type of financing does not require you to give out part of your business ownership to acquire finances.
Higher Costs: While it is a quick way of accessing cash for your business, it may come at higher costs than the rates charged on other types of business loans. Remember that failure to pay back the amount within the predetermined period will only increase the total amount that you will be required to pay.
Lengthy Contracts: Some agreements can be short and viable, but others can be long and winding than you would like. It is crucial, however, to negotiate the length of the contract that perfectly works for you and your business.
Any form of business, whether small or big, will at one point require business credit to support various day to day operations of the business. At one point, the business may require quick money to fix its operations. Sadly, credit access has become so tight, especially to small businesses with many traditional lenders unwilling to offer viable help. Accounts receivable financing can help businesses overcome those financial challenges.
How to Apply for Accounts Receivable Financing
- TAKE STOCK OF YOUR OPEN INVOICES.
Before applying for accounts receivable financing, determine how much money you need and take stock of your open invoices. If you’re considering invoice factoring, know that while some factoring companies allow you to select certain invoices to finance, others prefer to purchase all of your open invoices. With invoice financing, you could choose which specific invoices you’d like to finance. Decide what your goal is at the start and carefully research accounts receivable financing providers.
- GATHER DOCUMENTS NEEDED TO APPLY.
The documentation you’ll need to apply for accounts receivable financing will vary based on the lender you choose. You’ll most likely need to provide your accounts receivable/payable report; this document should detail the status of at least 90 days’ worth of invoices. The lender or financing company will use this report to verify your customers and the amount they owe you.
ADDITIONAL DOCUMENTS YOU MAY NEED:
Basic business details, such as your business license, articles of partnership or incorporation or a tax identification number.
-Recent tax returns or bank statements
-Information about outstanding invoices
Expect the lender or financing company to check your credit score when you apply. While invoice financing may require a higher credit score than invoice factoring, you may qualify with a score of at least 530 or higher.
- SUBMIT AN APPLICATION AND GET YOUR FUNDS.
For many non-bank lenders, you can complete an accounts receivable financing application online. Once approved, setting up asset-based financing may take as long as three to four weeks, depending on the amount you’re receiving and whether it’s in the form of a loan or credit line. When setup is complete, you could receive your funds in one to two days; invoice factoring may be faster.
Accounts Receivable Financing Companies
Accounts receivable (A/R) financing provides funding to help a small business address its cash flow or provide short-term working capital. A/R financing is based on the value of outstanding receivables that lenders choose to collateralize, providing businesses the funds they need. We’ve selected five of the best companies in A/R financing based on the amounts businesses can borrow, interest rate, and speed in receiving funds.
Accounts Receivable Financing Frequently Asked Questions
What is the difference between accounts receivable financing and factoring?
The primary distinction between factoring and bank financing of accounts receivables is invoice ownership. Factors buy your bills at a discounted rate, whereas banks need you to pledge or assign your invoices as security for a loan.
Is accounts receivable an asset?
Accounts receivable is a balance sheet asset that shows how much money a company owes in the short term. Accounts receivables are created when a company permits a customer to buy products or services on credit.
What are the benefits of accounts receivable?
The Benefits of Keeping Accounts Receivable Create a sense of loyalty among your customers. Allowing customers to pay for goods and services using IOUs, credit cards, or long-term payment plans can give businesses a considerable sales boost.
-Keep track of your customers’ credit.
-Profits that have not been collected should be tracked.
-The overall fiscal structure.
Unlock the Cash Tied Up in Your Receivables
HubCity Lending is a premier national company, and can arrange financing to small and medium sized businesses nationwide.
Accounts receivable financing, or Factoring, is the purchase of accounts receivable invoices at a discount. If you sell your products or services to businesses that pay in 30, 60, 90 days or more, HubCity Lending has a liquidity solution for you.
We can arrange financing for companies that are start-ups, losing money, or in bankruptcy because accounts receivable financing is based on your customer’s credit, not yours. This is not a “debt.” You are selling an asset. But it is more than just an asset sale; it is like outsourcing your accounts receivable department. Factors provide valuable services. They check your customers’ credit for you and notify you of bad risks and they provide detailed monthly statements. Qualifying accounts even get free credit insurance.
- Cash in 24 Hours
- No Personal Guarantees
- We Can Arrange Financing For Any Type of Business
- No Recourse Even if the Account Does Not Pay
Credit Insurance on Your Clients At No Cost To You
No Arbitrary Loan Board Decisions, No Fixed Payments
As Sales and Receivables Increase, Funding Increases
Focus On Your Business, Not Collections
Use the Month to Your Receivables
- Fund Payroll or Other Operating Expenses
- Purchase Inventory to Take Advantage of Bulk/Early Payment Discounts
- Fund Expansion and Growth
- Respond to Seasonal Demands and Opportunities
- Take on That Large New Account with Confidence