Contact Us Lawsuit Cash Advance Form Purchase Order Financing Form Transactional Funding What is accounts receivable funding or A/R funding? Accounts receivable funding (also known as "factoring") is the purchase of an invoice for delivered goods or services at a discount. A portion of the purchased invoice is advanced to your company at the time of purchase, and a portion is held in reserve until the invoice is actually paid by your customer. Is accounts receivable funding a loan ? No. As stated above the invoice is being purchased at a discount. It does not add debt to your balance sheet, and it does not give up equity (ownership) in your company. What types of companies can use accounts receivable funding ? Any company providing goods or services to a creditworthy business or government customer can use accounts receivable funding. One of the requirements is the product must have been delivered and invoiced to your customer, or the service must have been provided to your customer. Below is a partial list of the types of companies that can use accounts receivable funding. staffing companies trucking companies security guard companies security equipment companies janitorial companies cable TV installation companies information technology companies telecommunications companies landscaping companies engineering companies architectural service companies printing companies produce growers, food processors, produce importers/exporters, livestock(e.g. beef, pork, poultry) producers, fish and seafood companies manufacturers distributors wholesalers equipment maintenance companies When should I use accounts receivable funding? You should use accounts receivable funding when you need working capital for your business, and you have invoices from creditworthy customer on which you are waiting for payment and you cannot afford to wait for payment of the invoices. Do I have to use accounts receivable funding on all my invoices after my company setup to use your service? No. Once a customer is approved, you decide if you want to use accounts receivable funding on all or just some of the invoices to that customer. How does accounts receivable funding help my business? It makes a significant percentage of the value of an invoice available to your company in 24 to 48 hour after an invoice for delivered good or services is presented. This can make a huge impact on the working capital available to a business if the payment terms of the invoice are normally 30 days or more. What do you mean by a "significant percentage"? The "significant percentage" refers to the amount of the invoice that is "advanced" to your company within 24 to 48 hours of presenting the invoice for A/R funding. Since the percentage varies we are refraining from stating it here so as to not set your expectation as to what you are likely to receive. What about the part of the invoice that is not advanced to my company? The part of the invoice that is not advanced to your company is called the "reserve". A portion of the "reserve" will be used to pay the fee for the accounts receivable funding service. Any amount that is not used to pay the fee for the A/R funding service will be remitted to your company when your customer pays the invoice. What is the fee for the accounts receivable funding service? The fee for the accounts receivable funding services is called the "discount". The discount will vary for several reasons. Some of these reasons are listed below. the length of time from when the advance is made on the invoice until the invoice is paid by your customer the industry your company serves the risk perceived in the transaction (e.g. the creditworthiness of your customer) the size of the transaction (fees tend to be higher for smaller transactions) whether a commitment has been made to utilize the accounts receivable funding service for a specific length of time or transaction volume Are there any other fees other than the discount? There may be what is sometimes called a "due diligence" fee. This fee is used to check the creditworthiness of your customer, to check if the invoice may have been liened by your bank or another provider of accounts receivable funding services, and to check the background of you and your company. Also depending on the methods used, there may also be fees for transferring the advanced funds to your company (e.g. wire transfer fees). What monthly invoice volume must my company have to use accounts receivable funding? The minimum monthly invoice volume is about $2000 per month. There is no upper limit. Would my company be better off using a bank loan instead? Your company may not be better off with a bank loan. if your company is less than two years old, you may not qualify for a bank loan once you have a bank loan, the bank is likely to lien your receivables as collateral for the loan which will make it harder to utilize services like A/R funding or purchase order funding in the future a bank credit line may actually limit the growth of the company because the bank may not be able to grow the credit line as fast as the ability of your company to generate new business the bank may decide to call the loan if your company falls out of compliance with one or more covenants of the loan for any reason a bank loan will become debt on your company's balance sheet which can affect the valuation of your company if you are considering the sale of your company You keep mentioning creditworthiness of my customers. Why is that important? When you go to a bank for a loan they look at your credit history and your collateral. If you have a history of paying your bills and collateral just in case you run into problem repaying the loan, the bank will make your company a loan. With accounts receivable funding the collateral is the invoice and the likelihood that your customer will pay the invoice are the critical elements. If you have sold goods or services to a company with a poor history of paying its bills, the value of the collateral, the invoice in this case, will be greatly reduced. Therefore, in order for your invoices to be worth advancing against, your customer must have a good history of paying its bills. How long does it take to setup to use the accounts receivable funding service? The initial step is for you to complete an application and supply the requested financial documentation. Once the application and all the financial documents are received, the "due diligence" process will take about 5 to 7 business days to complete. After your account is setup, advances against invoices can be made within 24 to 48 hours of presentation of the invoice. My company cannot afford to offer credit terms to our customers. How can A/R funding benefit my company? If your company is not offering credit terms now, then it is probably turning away business from companies or government entities that will not pay on delivery of goods or services. A/R funding may allow your company to offer payment terms to your customers if the advance that is paid to you within 24 to 48 hours of invoice presentation covers your costs of providing the goods or services. By being able to offer payment terms, you can greatly expand the number of companies you are able to do business with. My company offers a 2% Net 10 discount to our customers. Why should I use A/R funding? A "2% Net 10 discount" may actually be more expensive than accounts receivable funding in terms of the effective rate. A 2% net 10 discount is equivalent to a 6% discount fee for a 30 day transaction. Unless the monthly transaction volume is small, the discount for a A/R funding may actually be less. My company already has a bank credit line? Can my company still use accounts receivable funding? Yes, but the cooperation of your bank will be required to release any lien (UCC-1) it may have on the invoices on which accounts receivable funding is to be used. The reason for this is that if someone else has ownership of the invoices (in this case, your bank), then you cannot sell them as part of an accounts receivable funding transaction. If my customer fails your creditworthiness requirement, should my company still do business with that customer? Who you do business with is your decision. If the customer is a new customer, then you may want to reconsider doing business with them. You may save yourself headaches later on. One of the advantages in using accounts receivable funding is the information you get about the likelihood that you will be paid by your customers. How you use that information is up to you. What happens if my customer does not pay the invoice? If your customer does not pay the invoice, there may be "recourse". Recourse means that your company will have to "make good" on the invoice that was not paid. This is often done by replacing the defaulted invoice with another invoice, but may also be done by repayment of the advance plus the fee for accounts receivable service. Recourse will not be required in the case where your customer failed to pay the invoice because they became insolvent. Some of our underwriters have the option of using credit insurance to reduce the risk to your company and themselves. When is an invoice considered to be in default? For commercial transactions (excluding third-party pay), an invoice is considered to be in default if it has not been paid by 90 days after the invoice date. Can I use A/R funding if my company has not yet delivered the product or service? No. A/R funding can only be used for products that have been delivered and services that have been performed, and for which an invoice has been presented to your customer. Your company may be able to use purchase order funding for goods that have been ordered, but not yet delivered. Unfortunately, purchase order funding cannot be used for services. Does my customer continue to pay my company when using the accounts receivable funding service? No. When using the accounts receivable funding service for an invoice you will inform your customer that their payment of the invoice should be redirected to the company providing accounts receivable funding to your company. In the event that they send the payment directly to your company, then you should forward that payment to the company providing the accounts receivable funding service to your company. If your company is not using the accounts receivable funding service on every invoice to that customer, then the funds received by the underwriter on any invoices that were not funded will be sent directly to your company. Some of my customers pay their invoices near the 90-day point, while most pay more quickly. Should I use accounts receivable funding for my customers that pay near the 90-day point? No. Your best strategy will usually be to use accounts receivable funding on your invoices that pay in 30 to 45 days. This will still make working capital available to your company, but at a lower cost than if you used accounts receivable funding on those invoices that pay near the 90-day point. Can the fee for accounts receivable funding be reduced by delaying the request for accounts receivable funding? Yes. Your company can usually delay requesting accounts receivable funding for up to 30 days after the invoice date. My company has an opportunity to bid on federal government contracts, but we are concerned about having enough working capital during the contract period. How can your service help our company? The federal government recognizes that its vendors may have cash flow challenges while waiting for payment on federal contracts. To help mitigate this problem, the federal government passed the Assignment of Claims Act of 1940. Very simply, this act provides the framework for doing accounts receivable funding on federal government contracts. The federal government realizes that many vendors to the government may experience working capital challenges while waiting for payment on goods and services provided to government departments and agencies. We can help you obtain the accounts receivable funding your company needs while waiting for payment on invoices for its government contracts. We are a HUB Zone company. Can we use accounts receivable funding? Yes. HUB (stands for Historically Underutilized Business) Zone companies can certainly use accounts receivable funding. Using this service will allow your to do the following. compete with larger companies with better cash reserves make working capital available from federal contracts to pay employees and subcontractors perhaps eliminate the need to use an SBA-backed bank loan My company is a subcontractor on a government contract to a company that is actually smaller than mine. Can my company use accounts receivable funding in this situation? Maybe. The company you are contracting under may not meet the "creditworthiness test". However, it may be possible to provide accounts receivable funding to the company you are working for and pass a portion of the proceeds through to your company. These situations need to be reviewed on a case-by-case basis to determine if accounts receivable funding can be done. My company has an indefinite delivery indefinite quantity (IDIQ) contract with the federal government. How can accounts receivable funding help my company's IDIQ contract? The beauty of accounts receivable funding is that it adapts to the peaks and valleys of your business. Accounts receivable funding costs your company nothing until you use it. With an IDIQ contract you do not know exactly when or how much of your product or service you will be asked to provide. It doesn't matter. Once that product or service is provided accounts receivable funding is ready to make available working capital to pay employees and suppliers within 24 to 48 hours of invoice presentation. My company is in bankruptcy and is looking for financial assistance during the bankruptcy reorganization. What can you do to help with our financing needs? Once a company is in bankruptcy we may be able to help with a form of accounts receivable funding called "debtor-in-possession" (or D.I.P.) financing. Working with the bankruptcy court and your bankruptcy attorney, an evaluation is done to determine if the application of accounts receivable funding will provide adequate and stable cash flow to allow the company to operate profitably going forward. If it can, then the company continues to operate with the assistance of accounts receivable funding (also called D.I.P. financing) while terms for settlement of the debt leading to the bankruptcy filing are worked out. If you have additional questions, or if you would like to learn more about how we can provide additional working capital to your business via accounts receivable funding, please click here to contact us, or Call us now at 1-800-598-1178 to get started.
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