We are often asked – What kind of company is a good fit for Factoring, a.k.a. Accounts Receivable financing?
First of all, let’s explain what an Accounts Receivable is. When a business has successfully delivered goods or services to their customer, but has not yet been paid by their customer, the bill or invoice for the money owed to the business is called an Accounts Receivable.
Depending on the terms, often times the customer has 30 to 60+ days to pay the bill, i.e. the Accounts Receivable. While the business is waiting to get paid by their customer, it still needs to make payroll, pay vendors, and other expenses. This situation can lead to problems with cash flow, or what is often referred to as a “Cash Crunch” for the business.
This is exactly the kind of problem where Accounts Receivable financing can be a great solution.
When it comes to asking what kind of company is a good fit for Accounts Receivable financing, there are two parts to this question we want to discuss in order to answer it completely:
- Types of Industries
- Profile of the Company
Most Common Industries that use Accounts Receivable Financing
We’ll start by looking at the types of industries that most often use factoring. These industries include:
- Staffing Companies
- Consulting Companies
- Shipping & Logistics
- Government Contractors
What 2 things do these industries have in common?
- They are all B2B (Business-to-Business) companies
- They all generate Accounts Receivables.
Profile of the Companies
When we look at WHY specific companies need help with cash flow, there are several reasons that often come into play. Sometimes a company is going through rapid growth and needs cash or “working capital” to help keep up with that growth. Maybe the business is turned down by a bank because it has only 1-3 years of operational history. Or perhaps the business owners have credit challenges and are unable to get financing from a traditional bank.
These are the types of scenarios where Accounts Receivable financing can really help. When a business can’t get the funding they need from a traditional bank, they can use their invoices as collateral to quickly get the cash they need. Furthermore, by utilizing Accounts Receivable financing, business owners don’t have to surrender critical business or personal assets if their business is struggling.
Primary Funding has parameters around our Accounts Receivable financing services:
- Receivable lines up to $1 million
- Advance rates up to 90%
- High concentrations are OK. Primary Funding can fund up to 100% concentration when the customer is strong
- Primary Funding does not lock you into a contract. Term is month-to-month with no minimums or prepayment penalties
- Primary Funding accepts internally prepared financials with corporate tax returns
- No collateral audits required
- No loan covenants
- First funding typically occurs in 5 days; subsequent funding in 24 hours
- Approval criteria: strong customers and receivables that perform