Accounts Receivable/Invoice Factoring a at Glance
Does your business run into cash flow issues due to a long accounts receivables payment cycle? Maybe your customers usually don’t pay for the goods or services you’ve provided right away.
While long accounts receivables cycles occur and are acceptable in certain situations and industries, it can make life tough for business owners. After all, you could have bills to pay, debt payments to make and payroll obligations to meet before your receivables are due. Yet not all businesses enjoy a steady stream of cash flowing into their businesses day after day.
Accounts receivables factoring helps businesses like yours get an immediate cash influx. You get a lump sum to use for whatever your business requires. It’s a simple fact of life in the business world; businesses need access to cash to operate. So if you need to shorten your business cycle, contact us today.
CTA: Do You Qualify?
If you’re interested in arranging accounts receivables factoring, the key factor (no pun intended) is your receivables. Your business needs a list of accounts receivables to sell.
An Example of Accounts Receivables Factoring
So when you sell your accounts receivables to a third party factoring company, the discounted purchase price gets calculated using what’s known as a factor rate. Here’s an example.
Let’s say you sold $20,000 of outstanding receivables. And let’s say the factor rate is 3%. The purchase price of your receivables would then be $20,000 less minus the factor rate. So you’d receive 97% of $20,000. This means we would buy your receivables for $19,400.
However, this does not mean you would receive $19,400 immediately. Instead, you’re more likely to receive an upfront advance. For the purpose of our example, let’s use 85% of the purchase price. So you would receive $16,490 now.
And then once the factor collects on your receivables, you’d receive the remaining 15%, (that works out to $2,910) of the purchase price of your receivables.
We facilitates accounts receivables factoring to qualified applicants in amounts ranging anywhere from $50K to $10M. Reach out to us today to discuss your situation and how this type of financing could benefit your business.
Minimum Requirements to Qualify
Accounts factoring is financing that helps businesses that have steady sales. So in addition to your list of accounts receivables, you’ll also need at least three months’ worth of business sales documentation to show your business does, in fact, have customers paying for your services and/or products.
What You Need to Apply
To apply for invoice factoring, you’ll need to provide more paperwork than for some other forms of business credit. You’ll need the following
- driver’s license
- voided business check
- bank statements for at least the past three months
- accounts receivable aging report
- accounts payable report
- debt schedule
- United Capital Source application page 1
Other Things You Should Know About Accounts Receivables Factoring
It can be easy to confuse accounts receivables factoring with two other similar business financing options: invoice financing and credit card processing loans (also known as a merchant cash advance). However, they are not the same thing.
Like accounts receivables factoring or invoice factoring, invoice financing gives borrowers access to finance based on the strength of their receivables. However, the borrower doesn’t sell their accounts receivables to a third party or a factor. They keep control of the list and of collecting outstanding amounts. Instead, the accounts receivable get used as collateral for a loan.
And with credit card processing loans, businesses receive a lump sum based on their day-to-day credit and debit card sales, not on their outstanding accounts receivable invoices.
At United Capital Source, most applicants who get approved for this kind of financing have been in business for at least a year. They have an average annual revenue of over $250K and a credit score of 550 or better.
What If My Accounts Receivables Factoring Application Gets Declined?
If your application gets declined, try not to get discouraged. And remember, there are other forms of financing for borrowers.
At United Capital Source we have access to a wide range of business financing options for businesses large and small. Our clients operate in a variety of sectors and industries. Like you, they may face challenges with credit, cash flow, and access to financing. So reach out to us today to explore other finance options to help you grow your business.