What is an Account Receivable Financing?
Account Receivable Financing is an Invoice Financing product funded by lenders that provides capital to businesses, against the full value of their creditworthy client invoice receivables.
Unlike Factoring Financing, this Invoice Financing product does not purchase the company’s invoice receivables. Instead, it grants an advance in the form of an Asset Based Business Credit Line for up to 85% of the companies most significant and best client owed invoices.
The Asset-Based Credit line is collateralized by the net realized value of the company Invoices. This is an excellent solution for businesses that desire access to working capital yet do not want to sell their invoices so they can maintain their client collections process for invoice payments.
Large Scale Commercial B2B Clients typically pay their invoices for goods or services in terms ranging from net 30 to up to net 90 business days or more. Brand name clients help stabilize the business and draw in additional clients.
However, juggling lengthy payment terms and the business’s daily operating expenses can tend to strangle cash flow, whether it’s for payroll, inventory needs, or simply wanting to grow the business with new projects.
Accounts Receivable Financing could be a great tool that helps provide companies with the liquidity required to scale by assisting them in freeing up their capital. Yet still allowing the company to be the face of the collection process with its customers.
Mid-Sized to Large Scale U.S Businesses with either Brand Name, Major Corporate, or MultiNational Clients with a minimum monthly invoice volume of over $750k to $1mm. Within Industries that include but are not limited to:
- Manufacturing Industry
- Staffing Industry
- Wholesale and Distribution Industry
- Construction Industry
- Medical Industry
- Retail Industry
- Professional Firms
- Transportation Industry
Since Accounts Receivable Financing, also called A/R Financing, is unlike Factoring Financing, the lender is not purchasing the business invoices. Generally, with this Invoice Financing product, the lender will use the business’s outstanding invoices as a form of collateral for an Asset Based Business Line of Credit or Loan.
However, all lenders will insist that the company points all of the client invoices that will be utilized within the funding to a neutral lockbox account. Whereby client payments can be monitored while also providing a place where advances to the company and repayments to the lender can be made. Which, in turn, allows the business to remain responsible for following up with and collecting payments from their customers.
Every funding offer will differ depending on the business and its clients. Therefore the average advance rate against creditworthy invoices is between 70% to 85% of invoices’ full value. After a company has instructed its client to direct payments to the lockbox account and the invoices have been verified, then the advance stage will take place.
They are advancing the business via their Asset-Based Line of Credit or Loan up to 85% of their submitted invoices full value within the following net 30 to net 90 business days once the client forwards the entire invoice payment into the lockbox account.
Then the rebate stage will take place whereby the lender will remit the balance of the invoice minus the cost of capital fees. All while removing their portion of the advance stage of the funding, thus closing out the full cycle of each invoice.
Once the company submits new client invoices, then the lender will replenish the Asset Based Line and advance against the original invoice total values. Accounts Receivable Financing can keep renewing with each round of invoices and can grow with the businesses as its level of invoices grow.
- Accounts Receivable Financing is not a loan; instead, it is an advance of capital that is collateralized by the full value of the company’s creditworthy client invoices.
- This Asset Based Lending product does not require owners to give out equity in the company to acquire Financing.
- Accounts Receivable Financing provides businesses with debt-free cash flow that can, in turn, be used to stay on top of the companies payables. Timely payment history has the potential benefit of helping a company’s credit score.
- Businesses could take on additional contracts or jobs from their new and existing clients, without the significant worry that their cash flow will be tied down by long payment invoice terms from customers. Account Receivable Financing only advances against the invoices vs. purchasing them outright and allowing the company to collect on their invoices directly with their clients.
The most important qualifier for getting approved for Accounts Receivable Financing is a customer base with a strong credit history (with a record of paying bills on time). The second most important qualifier is that your invoices are free and clear, meaning you do not have any liens or loans that use accounts receivable (A/R) as collateral.
SUBMISSION PACKAGE
- Signed Application
- 6-12 Most Months of Business Bank Statements
UNDERWRITING DOCUMENTS
- 2 Most recent years of Business Financials
- Including Profit & Loss and Balance Sheet
- 2 Most Recent Years of Business Tax Returns
- Copy of Most Recent 941 Filing
- Full Aged AR Reports with Detailed Payer Information by Insurance Provider
- Accounts Payable Aging Summary
- The owner (s) Personal Financial Statement
- Company Debt Schedule
- Proof of Ownership
Account Receivable Financing is an Invoice Financing product funded by lenders that provides capital to businesses, against the full value of their creditworthy client invoice receivables.
Available Capital Limit
Up to $10M per Invoice
Standard Interest Rates or Cost
Rates Start at 1.5% for the 1st 30 Days
Typical Underwriting TimeLine
5-10 Business days
Average Term Limits
12 to 24 Month Terms
In closing, According to some estimates, the U.S B2B Market is valued at over 11 Trillion dollars For companies that just service the top Fortune 500 companies.
For the Fortune 500, and indeed for all companies, typically, if you subtract profit from revenue, everything that is left is a cost. That cost is what analysts use to represent the size of the B2B market in the USA. Considering the Fortune 500 companies alone are said to make up about two-thirds of the total U.S GDP.
That means U.S. Small to Mid-Sized Businesses that service the top 500 companies are waiting on average anywhere from net 30 to up to net 90 business days or more. To be paid on their 11 Trillion dollars worth of Invoices and that number is growing year over year.
Accounts Receivable Financing allows companies to receive access to working capital against their outstanding invoices, all while maintaining control of their collections relationship with their clients. Our team at AmeriDream Capital is ready to provide your business with access to a few targeted Accounts Receivable Financing solutions that could speed up your company’s cash flow.
Please apply online, email us for an appointment, or call us today. Our team is committed to helping your business grow with Accounts Receivable Financing and will guide you through the loan process each step of the way.