Cash flow can be a major challenge for small and mid-sized San Antonio based businesses, especially when the company doesn't get paid immediately after delivering their product or service. Accounts receivable factoring is a common type of commercial financing that helps your business access capital right away. If you're looking into loan options, you should understand what accounts receivable financing is, how it works, and what the advantages are.
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Accounts receivable is the amount owed to a business by customers who have not yet paid. Many businesses bill customers by invoice, and there can be a gap of weeks or months between the time the product or service is provided and when the customer pays. Accounts receivable is listed on a company's balance sheet as an asset.
Accounts receivable financing provides capital to a company based on the company's accounts receivable. This allows companies to get immediate access to the cash they were due to receive from customers in the future.
1st Commercial Credit has financial resources to help San Antonio based businesses, including nationwide and foreign businesses finance their transactions with San Antonio buyers and sellers. We have available unique financial solutions that help finance the supply chain that may include invoice factoring, purchase order financing and accounts payable financing programs
We are a flexible Texas Factoring Company when it comes to financing your accounts receivable. Small to large companies can pledge their receivables and obtain a line of credit using their unpaid invoices as collateral in only 3 to 5 working days.
Accounts receivable financing can be structured in a few different ways. The two main types of accounts receivable financing are asset sales and loan agreements.
The asset sale process is sometimes called factoring, and financing companies that use this system are called factoring companies. During an asset sale, a business sells its accounts receivable to the financier. The financier provides the business with capital to replace the value of the accounts receivable. Then, the financier takes over the invoices and becomes responsible for collecting the amounts owed.
Most factoring companies will only buy short-term receivables, and they usually steer clear of defaulted receivables. They want to minimize the risk of losing out on payments, so they may only be interested in companies with recent invoices.
The terms of the agreement can vary depending on the size of the sale and the risk involved. The financier can pay up to 100 percent of the accounts receivable balance up-front, but most companies will pay around 80 percent. The financier may ask for the company's financial records or credit history as well as details about the invoices they're buying.
Once the financier verifies the invoices, they will send the funds to the seller through a wire transfer or direct deposit. This process usually happens very quickly, and businesses can expect to receive their funds within one business day of verification.
The financier will pay the remainder of the balance when they receive the payments from the customers. However, they will subtract financing fees from this amount. Most factoring companies charge 3 to 5 percent of the total invoice value.
Another way to structure accounts receivable financing is with a loan. In this situation, the financier provides an advance on the accounts receivable balance, but the business does not sell the invoices to the lender. Instead, the business repays the amount as they receive payments from their customers.
Accounts receivable loans can be secured with the invoices used as collateral, or they can be unsecured. Like asset sales, the terms vary depending on the circumstances. Lenders rarely offer a 100 percent advance on the accounts receivable balance. Most loans will amount to 70 to 90 percent of the total value of the invoices.
Lenders usually charge 2 to 4 percent of the loan's value in fees each month. The APR for accounts receivable loans can be significantly higher than bank loans, but many small businesses prefer them because they provide such fast access to cash flow.
Selective Receivables Factoring
Selective factoring can be a good option for businesses that need smaller amounts of capital. They can receive the cash flow they need without having to submit all their accounts.. It also isn't included on the balance sheet, so it doesn't affect debt ratio.
Different lenders have different requirements for approving accounts receivable financing. Factoring companies can be choosy about which businesses they work with because there is never a total guarantee that customers will pay. Financiers may consider the following information when determining whether or not to work with a business:
Lenders prefer working with businesses that have short-term invoices in a low-risk industry. Like with other types of loans, a poor credit history can prevent a company from qualifying.
A factoring company (or accounts receivable factoring) converts invoices sold on credit terms for immediate working capital at a discount. It has become a simple, fast and easy way to access business cash flow. In comparison with a traditional bank loan, a company that factors receivables has a quicker approval process.
1st Commercial Credit is a factoring company that specializes in evaluating accounts receivable and can make a prompt approval decision. The documentation requirements are not as lengthy, and the main requirement is that an applicant has invoices for work or orders that have already been satisfied. It also helps to have creditworthy customers. As long as a business has been in operation, meets revenue requirements and is free of liens or legal issues, approval is likelier.