Account Receivable Financing
A type of asset-financing arrangement in which a company uses its receivables - which is money owed by customers - as collateral in a financing agreement. The company receives an amount that is equal to a reduced value of the receivables pledged. The age of the receivables have a large effect on the amount a company will receive. The older the receivables, the less the company can expect. Also referred to as “factoring”. This type of financing helps companies free up capital that is stuck in accounts receivables. Accounts receivable financing transfers the default risk associated with the accounts receivables to the financing company; this transfer of risk can help the company using the financing to shift focus from trying to collect receivables to current business activities.
- Business to Business transactions
- We focus on customer creditworthiness more than the strength of our clients.
- Selling on terms, Net-15, Net-30, Net-45, and Net-60.
- Issues with invoice terms >90 days
- Size can range from $10k to $12.5m
- Facility size based on AR turnover i.e. 30 day terms, $100k per month - $100k facility Start-ups, companies experiencing growth / opportunity financing, and companies experiencing financial difficulties
- Example one – Line of credit tapped out, has an opportunity to grow but cannot due to bank’s limit, etc.
- Example two – Was with ABL lender, broke covenants and was asked to leave, etc.
- We can take out incumbent lenders or carve out certain assets (so long as we obtain a UCC-1 on AR)
- Work well with staffing, trucking, apparel, manufacturing, service-based and distribution companies
- Accounts Receivable Aging Summary
- Customer List with Addresses
- Sample Invoice Trails (copy of a recent invoice with the accompanying purchase order, bill of lading, signed time sheet, packing ticket, etc.)
- Signed Application
- Contracts with customers
- Once received and reviewed a consult call will be scheduled directly with the processor
Once legible and completed documents are received the file is reviewed by a Finance officer and you will be contacted within 24 hours to discuss findings and all options available to client.
- 30 to 60 day terms
- Credit worthy customers
- Clear invoice trail (easily can determine if work or product was approved by customer)
- Decent spread of customer base (10-20 customers / no major concentrations)
- Contracts / terms and conditions of arrangement are simple with little to no hindrances after invoice submission (i.e. no liquidated damages, stage / progression / milestone billing, retainage, extended warranties, rights to off-set)
- Customers can be contacted / know of BFS and prospect’s relationship
- Prospect utilizes factoring program to cover payroll and obtain new contracts to grow
- Collateral Required: Account receivables
- Loan Amounts: $5,000-$20 million
- Term: Up to 80% of receivables can be advanced within 24 hours, 20% minus the lender’s fee is released once actual invoice is paid
- Rates: 1.25-3% discount. 4% fee is common
- Credit Requirements: No credit score requirements to qualify
- Details: Receivables must come from another business or government agency not an individual, business must be open for at least 1 year to qualify, medical receivables can qualify along with construction and conventional receivables
- Deal Submission requirements: Application, breakdown of existing receivables, sample invoice