Up to 80% of receivables
Estimated Repayment Terms
Until customer pays the receivables
Starting @ 1.02
Speed of Funding
As fast as same day
Free Up Working Capital with Accounts Receivable Financing
As much as we’d like them to, invoices aren’t always paid on time. And when they are, repayment terms often leave you with gaps in your cash flow as you wait 30, 60 or even 90 days to get paid.
When you’re counting on this capital to maintain day-to-day operations, pay staff and support growth, it can put your small business under unnecessary financial strain.
But what if you could get paid faster for the work you’ve already delivered?
With accounts receivables (AR) financing, you can.
What Is Accounts Receivable Financing?
Accounts receivable financing is defined as a loan a business owner takes out against unpaid invoices. In these types of agreements, a receivables financing company will advance you a percentage of your invoice’s face value. Once your customer pays their debt, the invoice financing company will forward you the remaining balance, minus their fee.
Benefits of an Accounts Receivable Loan
- Improved Cash Flow: Late payments can put a strain on cash flow. By taking out a loan against receivables, you gain access to cash without having to ask your clients for immediate payment.
- Low barrier to access: To get approved for a loan, banks often require collateral, a solid credit score and years in business. Many small business owners don’t meet these requirements. Because accounts receivables financing is based on the likelihood that an invoice will be paid, your customer’s creditworthiness is what matters most to lenders.
How Does Invoice Financing Work?
Understanding how invoice and accounts receivable financing works is simple.
Step 1. Invoice Selection
Accounts receivable financing companies value invoices with specific characteristics. When selecting outstanding receivables to finance, look for newer invoices, smaller invoices and those unpaid by reputable firms. Doing so will increase your chance of approval.
Step 2. Lender Deposits Capital
Once approved, lenders advance you a percentage of the invoice value. The amount you receive will depend on several factors, including the size of the invoice and the industry of your customer. Typical advance rates fall within the 70- to 80-percent range.
Step 3. Fees Accrue
The cost of invoice financing will depend on the time it takes your customer to pay. Your lender will charge a weekly fee, known as a factor, until the debt is satisfied. At which point, the reserve balance, minus fees, is forwarded on to you.
When Does It Make Sense for a Business to Consider Accounts Receivable Financing?
If you operate in the B2B space and issue invoices with clear repayment terms, you’re eligible for invoice financing. It’s an especially useful tool if you work in an industry with long payment cycles, as financing receivables allows you to tap into the cash that’s tied up in that process.
With invoice financing, unpaid debts could fund just about any aspect of your business, from simply maintaining liquidity to paying for capital investments and expansion.
What’s more, as lending decisions are based primarily on the quality of the invoices themselves, the review process is far faster than you’d experience when applying for a traditional small business loan. In fact, in certain circumstances, funds are issued the same day you apply.
Consider invoice financing if:
- You operate in the B2B space and you carry a high receivables balance
- You’re experiencing a short-term cash flow shortage
- You’re presented with a business opportunity, but you don’t have the cash reserves to support it
The Difference Between Invoice Factoring and Accounts Receivable Financing
The terms ‘invoice factoring’ and ‘accounts receivable financing’ are often used interchangeably. But they are two distinct funding products with a few small but fundamental differences.
Accounts Receivable Financing vs. Factoring
Invoice factors buy; accounts receivable financiers advance. Factors purchase invoices at a discounted rate, while receivable lending companies accept invoices as collateral for an advance.
Factors take on the responsibility of collecting payments from your customers; AR lenders leave that task to you. In accounts receivable financing, you own the invoice and the customer relationship. That means all collection processes stay with you. Invoice factors take this responsibility over as they, not you, own the invoice.
How to Qualify for Accounts Receivables Funding
Based on previously approved borrowers, you’re likely to qualify if:
- You’ve been in business 1+ years.
- Your annual revenue is $150K or higher.
- Your credit score is 600 or better.
As mentioned earlier, one of the benefits of accounts receivable financing is that your customer’s financial qualifications (not your business’s) are what matter most to accounts receivable lenders. The best accounts receivable companies will perform a reputational analysis, business credit check and a thorough examination of your customer’s payment history with your company.
While the health of your business is less relevant, it will still come under review and will influence offered advance and factoring rates.
What the Best Invoice Financing Lenders Look For
Typically, the following invoice characteristics will result in the most favorable accounts receivable financing rates and terms:
Newer invoices are seen as more valuable since the possibility of payment is more likely compared to older invoices. You can increase your chances of qualifying for accounts receivable financing if your invoices have only recently gone past due (between 30-90 days).
Lenders find invoices more valuable if a larger business with a significant annual revenue is responsible for payment. On the other hand, if your client lacks working capital, you may not qualify due to the risk that comes with your invoice.
Small invoices are less of a gamble to lenders. The less money your client owes, the more likely they will pay.
How to Apply for Accounts Receivable Financing
Applying for accounts receivable financing can be accomplished with an online business funder. But how do you determine who to work with? Fast Capital 360 can pair you with the best accounts receivables financing companies on the market.
The application takes only minutes to complete and asks for simple business details and contact information.
Here’s how it works:
Step 1: Tell us about your business.
Tell us how you plan to use your funds and share information about your company.
Step 2: Tell us about you.
We need to learn about you so we can determine your eligibility. But don’t worry, this won’t impact your credit score.
Step 3: Submit additional financial documentation.
Upload financial documents to complete your application. We’ll review your accounts receivables and your financials to confirm your business has the cash flow to afford the recurring advance payments.
Step 4: Get funded.
Funds are deposited in your business bank account in as little as 24 hours.
How Much Does Accounts Receivable Financing Cost
The cost of accounts receivables financing comes down to three things: how long it takes your customer to pay, your lender’s fees and your quoted factor rate.
Though fees vary by lender, expect to pay a single processing fee on each invoice you finance and a monthly factor until the invoice is paid in full.
To help you understand this cost structure, let’s walk through an accounts receivable financing example.
Accounts Receivable Financing Example
Joan’s Custom Jewelry receives a 70-percent advance for an invoice totaling $15,000.
Invoice Amount: $15,000.00 Advance Amount: $10,500.00 Reserve Amount: $4,500.00
Invoice Amount: $15,000.00
Advance Amount: $10,500.00
Reserve Amount: $4,500.00
The lender charges a monthly factor fee of 1.02 (2% of the total receivable value) until the invoice is paid in full.
Factoring Fee: $300/month
Factoring Fee: $300/month
It takes Joan’s customer a total of 90 days (3 months) to repay the invoice.
Cost of Financing: $900.00 Rebate Owed to Joan’s Custom Jewelry: $3,600.00
Cost of Financing: $900.00
Rebate Owed to Joan’s Custom Jewelry: $3,600.00
What Will You Use Accounts Receivable Financing For?
Accounts receivable financing helps you tackle the cost of running your business when you are waiting for outstanding payments.
Let’s review some of the reasons why your business may need to use accounts receivable financing:
When your outstanding invoices are left unpaid, receiving payment is a top priority as your seasonal lull approaches. Maintaining sufficient working capital is crucial to sustaining your business. Accounts receivable financing can keep you above water while you wait for your clients to pay.
Sometimes opportunities to take your business to the next level come when you don’t have enough working capital to act on them. Accounts receivable financing will provide you with the money you need to stay focused on your business’s opportunities for growth.
In the world of business, you need to expect the unexpected. Emergencies happen, and when they do, they can cause a significant gap in your cash flow, especially when you have a number of outstanding invoices. Invoice financing fills that gap, allowing you to handle emergency expenses that come your way.
Peace of Mind
When you have a large amount of capital tied up in outstanding invoices, it’s understandably unsettling. With accounts receivable financing, you can unlock that capital now, before you’re pressed for time (and for cash).