Accounts
Receivable Financing
Factoring-Accounts-Receivables: Accounts Receivable Financing, sometimes referred to as factoring, is the process of borrowing/selling credit-worthy accounts receivable/invoices for a discount in exchange for immediate cash. Accounts receivable financing provides a solution to companies that have already produced, shipped and invoiced products, and are waiting for payment, but have immediate cash needs. This is an excellent method for companies that do not qualify for traditional bank financing due to a short operating history. Factoring-Accounts-Receivables can often fund these emerging growth companies because we evaluate the creditworthiness of the client’s customer. Example of Accounts Receivable Financing: A telecommunications company, which sells integrated software and hardware packages to large corporations and call centers, is seeking short-term financing and is referred to Factoring-Accounts-Receivables by a venture capital firm. The company has several large purchase orders for a new product, and has current sales and accounts receivables from an existing product. The company does not qualify for financing based on the purchase orders for their new product. However, in reviewing their financial statements it is determined the company has a large amount of account receivables and that their customers typically pay within 55 days. Factoring-Accounts-Receivables completes credit checks on the company’s customers and determines that $200,000 of the accounts receivable are with creditworthy customers and that the invoices are due to be paid within 45 days. Factoring-Accounts-Receivables promptly advances the telecommunications company $160,000. At the end of the 45 days, the invoice amount is paid to Factoring-Accounts-Receivables and the balance of the proceeds are forwarded to the client. Typical Lending Criteria for Accounts Receivable Financing: Client's customer(s) must be creditworthy Size of the invoice(s): $100,000 - $1,000,000 Advance 80% to 95% of the value of the invoice, depending on the industry and volume of business Company needs a high enough profit margin to absorb funding costs (generally, gross margins of 25%+) Funds are needed for 30 to 120 days Business-to-business accounts receivable from all industries are considered, except construction and medical billings Benefits of Factoring-Accounts-Receivables' Accounts Receivable Financing: Stimulates cash flow Quickly strengthens a company's financial statements by converting collectable assets into cash Gives clients the ability to offer better credit terms to their customers Secure discounts from trade vendors for early payment Retain equity and improve credit rating Keep up with customer orders and take new customer orders Increases a company's purchasing power and provides cash for marketing, expansion, and new equipment |
ACCOUNTS RECEIVABLE PURCHASING FACTORING QUESTIONS AND ANSWERS |