How Account Receivable Financing Works

Have you considered utilizing account receivable financing to help grow your business? Going through the process of applying for funding is never easy. The world we now live in is full of regulation for the traditional lenders such as banks. When you ask them for funding you better be prepared for a million and one questions.

What a business needs to apply for a bank loan:

  • Good Credit
    • A financial institution is going to look at both the business’ credit and the borrower’s credit history.
    • It is recommended that you know both of these scores prior to applying for a bank loan.
  • Personal Assets to put up for Collateral
    • A secured loan is going to require collateral to ensure the bank’s stake in your business.
    • Personal collateral can be used if the business is just starting out and does not have many assets.
  • A Well Thought Out Business Plan
    • The banks want to see where you envision your company in three to five years.
    • Then they want to know how you plan to grow to get there.
    • They also want to ensure they are going to get a return on their money.
  • Financial Statements from the Last Few Years
    • Banks want to see the overall health of your business.
    • They are going to be looking to approve someone for a loan who has been in business for at least two years.

When a business does not meet one or more of the above requirements for a bank loan, they are typically turned down. That is not always the case but only one in five businesses are approved for a business loan in today’s regulated environment. That means 80% of businesses are denied.

Down To Business – How It Works

For this reason, account receivable financing is becoming more and more popular.  Another name for account receivable financing is account receivable factoring. This type of financing allows a business to get a quick source of cash flow in exchange for the opportunity to get paid back by your original client. A different way to think about it is a business will sell their outstanding unpaid invoices to a “factoring” firm at a discount. The firm will give your business cash. An invoice that is newer will receive a larger amount of cash than an invoice that has been unpaid for longer. Your client’s will then pay the factor (without realizing it).

The price of receiving the cash immediately is the discount to which you sell the contract. This type of a deal will not give you the full cash value of your invoice, as the firm is also looking to make money. Typically, you should expect to give up about 20-25% of the value.  This will be determined by a number of different factors such as the age of the invoice.  The risk on behalf of the factor is that if your client’s don’t pay, they will not make any money. This assumed risk is factored into the purchase price.

Because you lose about 25% of the value of your invoices, many businesses choose to go with an alternative to account receivable financing. One alternative is a Merchant Cash Advance which allows you to keep your invoices at full value but pay a percentage of your daily credit card transactions instead. This option is great for businesses that are looking to get cash quickly but not lose the value of the contracts.

Keep Your Money

Unlike account receivable financing, we don’t get paid until you get paid from your clients. We aren’t looking to short change you on the hard work you do for your customers. We want to help you grow your business. This is why we have made it simple to apply and can get you approved in just 24 hours!

Getting Started

So are you ready to continue servicing your clients but keep the full value of your invoices? We are ready to help!

Call eBusiness Funding at 305-985-6604 or Complete the contact form on this page


Article Name
How Account Receivable Financing Works
There are many account receivable financing options on the market to help offset your business operating expenses until you get paid.
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Andy L.

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