Accounts Receivable Financing- How to Use Other People’s Money to Finance your Growth

In general, the larger your customers are, the slower they pay your invoices. It’s like the old joke, Question: “Where does a gorilla sit?” Answer: “Anywhere it wants to.” For example, a small sound engineering company was engaged to provide sound effects for a major motion picture production studio. When asked to comment on their experience working with such a prestigious client, the owner said: “fear the ears”.
It simply is a universal trend that your largest customers may be the slowest to pay you. Do you have to wait 60 to 90 days to be paid by your largest commercial or government customers? If so, accounts receivable financing may be the answer to your cash flow problems.

There are several advantages to accounts receivable financing compared to regular bank financing. Your current credit score, or your company’s credit, is not an issue because the financing entity relies on the creditworthiness of your customer. In fact, some companies that are in the “Special Assets” division of a bank (which is a euphemism for being asked to leave the Bank” are prime candidates for accounts receivable financing. At another extreme, some companies that are in a Chapter 11 Bankruptcy proceeding, (called Debtor’s in Possession) can obtain accounts receivable financing with the express permission of the Bankruptcy court.

Accounts receivable financing will grow in terms of your credit limit as your company grows. So if you are with the right commercial finance company, your growth is potentially unlimited. Compare this with regular bank financing which looks at your current situation and your past two years operating history.

Many entrepreneurs are optimistic, energetic and very positive in their predictions about their future. Bank analysts are trained to look at worst case scenarios. Every Bank has to undergo a periodic “Safety and Soundness Examination”. Part of this process is a team of federal regulators second guessing every loan decision where the bank has granted credit.

There’s a lot of truth to the old adage that bank’s will only lend money to people who don’t need it. Banks do not want to suffer the penalties that may be imposed by the federal regulators if they found to have made a “bad” loan. So the standards and perspectives of Banks and Commercial Finance Companies are very different.

Accounts receivable financing can provide you with the cash you need within a day or two of your invoicing your customer. Some commercial finance companies have very sophisticated internet based submission systems. You submit the invoice electronically; it is reviewed and verified; and the agreed upon cash advance is wired to you the very same day. Other companies use a paper fax based system but the results are very similar.

Accounts receivable financing terminology can be confusing. The following words have essentially the same meaning: accounts receivable financing, factoring, receivables factoring, factor invoices, discount factoring, asset based lending (usually associated with very large transactions).

The bottom line: if your customers are paying you too slowly, and this is limiting your business growth potential or profits, you should consider accounts receivable financing.

Copyright © 2007 Gregg Financial Services
www.greggfinancialservices.com


Mr. Elberg is a licensed attorney and licensed real estate broker. Gregg Financial Services is a full service brokerage for commercial finance companies and banks that fund B2B businesses. Mr. Elberg arranges funding from $25,000 to $50 million per month at competitive pricing, and works to reduce your financing costs as your company grows. For more information about GFS, please visit our website: www.greggfinancialservices.com  or email: This email address is being protected from spam bots, you need Javascript enabled to view it