Accounts Receivable Financing Suffolk VA

Accounts receivable financing is essentially the selling of invoices to receive immediate income and capital for a business. Also know as Invoice factoring, it is a billion dollar industry. Unbeknownst to most small companies, invoice factoring has been around for years and is often utilized by larger companies. It is only recently that this service has been offered to small companies which have a great deal of trouble getting funding from banks and financial institutions.

Accounts receivable financing is based on the overall credit rating of the invoiced customer and not solely on the credit rating of the client company. This allows client companies with less than two years of history. It also allows companies in financially difficult times to utilize accounts receivable financing.

The overall funding process is simple enough. Your company invoices your customer for services or goods you provided. Your company sends in the invoice to the factoring agent. Funds are then either wired or deposited directly into your account. The process takes about 48 hours to receive the funding. Once the invoice has been paid by your customer, the factoring agent takes out the factoring fee, generally 2% to 3% from the 20% to 25% of the invoice face value not funded. Any remaining funds are then transferred directly to you. Again, this process takes about 48 hours.

Accounts receivable financing involves the act of selling of outstanding invoices to other companies that then take on the debt owed. Companies that offer accounts receivable financing solutions buy invoices at discounted rates and the money serves as a source of fast cash for businesses in need of cash.

Many small businesses in Suffolk have difficulty acquiring loans or lines of credit from traditional financial institutions. There are a number of reasons for this. Credit history, length of time in business, collateral, and the type of industry all play heavily into a bank's decision to loan or not to loan money.

Additionally, banks may be ill equipped to handle the job of monitoring invoices and inventory of a particular industry. They may not want to take on the risk associated with that type of funding option. Furthermore, they may not fully understand the industry that your company competes in. To a banker, a lack of understanding equals greater risk and greater risk often times equals a denial.

By contrast, factoring companies rely on the creditworthiness of your clients. There are no rigid standards to meet on your company's part. New business and old businesses alike can benefit. Furthermore, some factoring agencies actually offer factoring solutions to companies under bankruptcy protection.

There are a number of benefits derived from the use of accounts receivable financing solutions. First, the company that is selling invoices can rid themselves of the hassle of handling various debts-the debts become the problem of the company offering accounts receivable financing solutions. Also, a company in need of money can get their hands on some fast cash, thanks to accounts receivable financing services.

The initial application process is completed relatively quickly. The paperwork is minimal for the world of corporate finance. Most of the paperwork should already be on hand or easily obtainable. Paperwork includes a two year history, if applicable, of the company P&L, balance sheet, and income statement. Prior invoices may need to be submitted so that the factoring agent may get a better understanding of the invoicing process and format used in your industry and by you and your clientele. The packet is then reviewed by the factoring agent. Upon approval, a Letter of Intent (LOI) is submitted to the client company. This LOI is then signed by the company and returned. A contract is submitted. Due diligence is performed one last time by the factoring agent. Final approval is granted. The invoice factoring begins. The entire application process takes as little as two weeks. If open invoices are submitted during the application process, funding for these invoices generally takes a few additional days due to the newness of the account.

The funding process takes 24 to 48 hours. This is the amount of time from submission of the invoice until funding is received into the business account. As any business owner can tell, this is a fraction of time when compared to waiting 35 to 45 days for payment of an invoice.

Funding amounts vary depending on the terms of your businesses loan. Typically, the factoring is done at 80% of the face value of the invoice. Say for example the invoice your company submits to the factoring agent is for $200,000. The amount of funding your company would receive initially would be 80% of the face value which would be $160,000. Once payment is received by the factoring agent, the factoring fee is taken out of the remainder. This can be anywhere from 2 to 3% of the funding amount. At a 3% funding rate the fee would be $4,800. This amount is then deducted from the $40,000 and the remainder is transferred directly into the account.