What is accounts receivable financing?

Accounts receivable finance is a type of asset finance wherein a company uses its receivables as collateral to secure a cash advance. In its basic form, receivable finance is considered as an arrangement providing credit to a party using an amount payable by one party to another for goods or services. Receivable financing is used so that the business can receive cash more quickly than it would by waiting 30 to 60 days for a customer payment.

Why do I need receivables finance?

  • Do your customers demand longer payment terms?
  • Do you worry about delayed payments or bad debts?
  • Are you concerned about missing opportunities because of tight cash flow?
  • Do you need more efficient payment collection?

Receivable finance unlocks working capital, enhances your cash flow, reduces the risk of bad debts and unleashes your business potential.

What are the benefits of accounts receivable finance?

There are several reasons why accounts receivable finance is a valuable financial tool for many businesses. The key benefit is that, instead of waiting several months for a customer payment, you now have that cash in hand to operate and grow your business. PrimeRevenue’s accounts receivable finance solution provides early payment within 24 hours. This can solve short-term cash flow issues as well as reduce the risk of payment defaults. Accounts receivable finance is not a loan. No debt is generated by your company. The funds are unrestricted, providing you more flexibility than traditional bank loans. Some other major benefits include:

  • Accounts receivable finance can be customized and managed so that it provides the necessary cash flow when your company needs it.
  • The financing represents a true sale of your receivable
  • Usually, your clients are not notified and unaware of the financing facilities
  • Up to 100 percent of payment is advanced
  • Accounts receivable finance is mainly based on the quality of your customer’s credit and less on your company’s financial strength

How does accounts receivable finance work?

Here’s an example to illustrate a common accounts receivable finance solution: ABC Inc. is a manufacturing company that wants to grow its cash flow by $100 Million over the next two years. The company has two large customers in Europe. The customers pay their invoices typically in 90 days. The management of ABC Inc. feels that the lack of available cash flow due to long payment terms from their two biggest clients have prevented the company from taking on new business. ABC Inc. turns to PrimeRevenue, selling its invoices from the two European customers to a third party funder on PrimeRevenue’s SCiCustomer platform, in exchange for a 100 percent advance within a day on the total amount minus a small discount. Upon due date, the funder collects the repayment from the two European customers. If ABC Inc. wants to keep the accounts receivable finance solution confidential, there is an option to collect the payment itself.

Can I make money using accounts receivable finance?

Besides allowing your business to grow and thereby generate more profit, accounts receivable finance also helps you make more money by allowing you to take advantage of early payment discounts from your suppliers. Often a supplier will offer a 2% discount for paying their invoices early.

How many invoices do I need to sell?

It depends on your company’s unique business needs. Some companies sell all of their invoices, while others sell only invoices at specific times (e.g. month end).

What is the difference between accounts receivable finance and a bank loan?

Accounts receivable financing is a quick, flexible way for your business to generate cash flow. Here is how accounts receivable finance differs from a bank loan or line of credit:

  • Accounts receivable financing is not a loan. You assume no debt. However with a bank loan you repay principal and interest on your loan.
  • In accounts receivable finance rates can be adjusted throughout the life time of the financing program. Using a bank loan your annual percentage rate is locked long-term.
  • With accounts receivable financing the amount of money you can finance grows as your receivables grow. In contrast using a bank loan, the money you borrow comes with a cap or a limit.

Contact us today to find out how we can serve your needs.