Accounts receivable financing is based on revenue your business has already earned. Use it to boost cash flow whenever you need it.

accounts receivable financing is based on

As the owner of a B2B company, one of your biggest frustrations is trying to get paid on time by certain customers. Most B2B companies struggle with cash flow at some point. Companies that offer long payment terms or have a seasonal business can relate particularly well .

There are far too many customers who expect generous payment terms to be handed to them. There are also customers that are just slow payers, such as the government and large corporations. At these organizations, your invoices go through several layers of management before the payment is approved. The purchasing and accounts payable departments may as well be at different companies.

Using Accounts Receivable Financing to Smooth Cash Flow

The larger the company, the longer they take to pay. The red bars in the chart above are late payments as a percentage of total transactions.

 

What does this mean for your business? Unfortunately, cash flow problems… It worsens when you have bills due, or when employee payroll is coming up. What about the big credit card payment that’s due later this month? Well, that’s when you turn to invoice factoring.

Invoice factoring, which is also called accounts receivable financing, freight bill factoring (in the transportation industry), or payroll funding, combines credit management with business funding. It’s a combination of excellent service and timely money. Factoring allows you to extend credit to your customers and still get paid cash immediately for your product or service.

Accounts receivable financing maximizes your cash flow and is the most flexible method of small business financing. It’s much easier and faster to get approved for a factoring credit facility than a traditional loan. Harper’s factoring credit facilities extend up to $5 million – you’ll likely be granted a larger factoring facility than a bank will approve in loans.

How Accounts Receivable Financing Companies Work…

B2B companies sell their receivables to accounts receivable financing companies (also called factoring companies). The factoring company advances 70 to 90% of the invoice amount after checking the creditworthiness of the customers being billed. Once the invoice is paid, the factoring company pays the balance while deducting the factoring fee – usually between 1% and 5%.

B2B companies prefer accounts receivable financing to other methods as it allows them to get their money quickly, without having to wait 1 to 3 months for the payment to be made. A typical factoring company usually takes 1 to 2 business days to fund the advance. Harper Partners provides same day wires.

Why is Accounts Receivable Financing Preferred to Traditional Bank Financing?

Many small business owners prefer using invoice factoring companies over banks when in urgent need of funds.

Banks are very concerned about the financial soundness of the borrower and are wary about lending to companies with a short credit history. They expect the business to post collateral (often personal assets) while applying for a loan and put strict restrictions on what you can use their money for.

AR financing companies are not too concerned about a B2B company’s credit score and does not ask for collateral outside of the purchased receivables. They care more about the value of the invoices and the creditworthiness of your customers.

If there’s any doubt about the capacity of the billed customer to pay the invoice, factoring companies may charge a higher factoring fee for the additional risk. Or they may carve that customer out from being factored in the credit facility. However, in general, they require relatively little paperwork and are very straightforward to work with.

Provided you choose the right accounts receivable financing company, there should be no hidden charges and payment penalties. It’s why $100 billion of accounts receivable flow through U.S. factoring companies every year. Many of which specialize in specific industries such as trucking, healthcare, construction and advertising.

Pros and Cons of Using AR Financing

Pros

Instant Funds to Improve Cash Flow  Access in 1 business day to funding to cover gaps in cash flow. This allows you to stop worrying about your cash balance and refocus on growing your business.

Fast and Easy Approval – Factoring companies don’t take long to approve a business (usually less than 5 days for Harper Partners, and 2 days for our smaller credit lines), and unlike banks, they don’t ask for collateral to be posted. They require limited paperwork and are not as concerned as other lenders about your creditworthiness or operating history. They only care about the verification of the invoices and the creditworthiness of your customers.

Cons

Hidden Fees – Some factoring companies have hidden fees, charges and penalties, which you should watch out for. At Harper, we’re completely transparent about fees. You’ll come to find that not only do we give you all information upfront so that you can make an educated decision, we have very competitive rates.

Loss of Control – Since the factoring company collects invoices from customers directly, you may lose some control over your communications with them. At Harper, we never contact your customer unless you would like us to. Invoice payments are sent to an account under your business name. However, if you ever need a helping hand, we have collection services that can reach out to customers and collect on your behalf.

We are a California alternative lender that specializes in invoice factoring for modern B2B companies all over the U.S. We offer a fast, simple and transparent online solution to steady cash flow. We can set up credit lines in 2 business days and wire funds same day once set up. Our credit lines extend up to $5 million so we can grow with your business at every stage.

Give us a call at (323) 285-1462 or send us a message in the chatbox below to learn more about how we can help your business.

If you’d like to read more about what we offer, check out the benefits of partnering with us, our Small Business Factoring Resource and our definitive Invoice Factoring 101 Guide.