Which will get you the most cash in hand?
As companies expand into new markets, the need to access liquidity, optimize working capital and minimize credit risks are becoming increasingly important. Cash flow is often the biggest of these obstacles, and finding ways to free up extra funds can make all the difference when it comes to growing a company and achieving success.
Instead of waiting for clients to make early payment on outstanding invoices, many companies opt to sell receivables as a way to get cash in-hand right away, when it’s needed most. There are a number of tools available to companies in search of receivable-based financing. Two of the most popular ones are factoring and accounts receivable financing (also known as A/R financing). While many business owners lump the two together, there are important differences between these solutions.
Factoring, though the more traditional solution, is costly and cumbersome, and usually only advances about 80 percent on sold invoices. In factoring, the lender takes over the collection of each purchased receivable. Invoices are often sold on a wholesale agreement basis, meaning a company is required to sell its entire debtor ledger at a steep discount, usually with recourse. While many businesses use factoring to get instant access to cash, this comes at a very high price with overall costs often exceeding 30% in annual interest. Lastly, factoring is mostly limited to domestic financing and, therefore, not suitable for companies that have customers in different countries.
Accounts receivable finance, such as PrimeRevenue’s solution, is completely different than factoring as it offers companies cross-border financing at attractive rates with up to 100 percent advanced payment of available invoices. PrimeRevenue’s accounts receivable solution is structured on a non-recourse basis and therefore is eligible for off-balance sheet treatment. In addition, PrimeRevenue provides a truly global multi-funder environment, thus increasing the availability of funding, with less restrictions on a company’s customer portfolio while providing the advantage of low-cost pricing. In most cases, financing rates are as much as 10 times lower than traditional factoring. Additionally, unlike factoring and other trade finance solutions, PrimeRevenue’s accounts receivable solution allows companies to receive financing in multiple jurisdictions and currencies based on competitive pricing, providing centralized and accelerated payments without any disclosure to customers.
It is also not necessary for a company to sell all of its invoices, as PrimeRevenue’s accounts receivable financing is done based on selected, unapproved invoices. Invoice data is uploaded into the PrimeRevenue platform to be processed, where the company can choose which receivables they would like to finance. Funds are then provided by a variety of different funders such as leading commercial banks and non-bank funders, and are reconciled against payments, without customer involvement.