Accounts receivable financing, a time-tested, versatile and debt free method of financing a business, is making a comeback.
September 2, 2010 – Fredericksburg, VA –Today’s savvy business owners and finance professionals have asset-based finance methods on their radars as a viable alternative to traditional bank loans for their business financing. For an established company in need of fast money to meet its current obligations, to finance a growth spurt, or to provide a reliable, debt-free source of working capital financing, accounts receivable financing offers an excellent solution.
According to Mike Lieber, president of AEGIS Financial Solutions, Inc., and creator of a new business financing web site (http://www.smart-business-financing.com), accounts receivable financing is no longer just a business lifeline but has moved into the mainstream of commercial finance since the onset of the credit crunch in 2008.
“When the banks clamped down on business credit, companies were forced to search for alternatives in order to survive,” he says.
What is accounts receivable financing? When a business performs works or sells goods to a customer who does not immediately pay for the work or product, a receivable is created. Typically, an invoice is sent to the customer documenting the goods or services rendered, the amount due and the terms of payment, normally 30 days, but sometimes longer.
On the one hand, granting terms allows a company to attract customers. Many companies, larger ones in particular, and government agencies expect extended payment terms and will refrain from doing business with companies that do not offer them.
“By offering terms, a business can grow its customer base, and it will probably sell more to its current customers, too,” says Lieber.
The downside is that for a business owner in need of quick money, a stack of open invoices can mean lost opportunity, or worse.
Accounts receivable financing allows a company to convert those invoices to immediate cash, eliminating the obstacle of extending terms to current and prospective customers. Two common methods are:
Accounts Receivable Factoring … By far the most versatile and widely used of the techniques, receivables factoring is the straight sale of a company’s (the client’s) invoices to a factor – a cash flow business, or finance firm – at a small discount. The factor immediately advances a pre-determined lump sum payment to the client, typically 70% to 90% of the total invoices, holding the remainder in reserve until it receives payment from the client’s customers. Once the invoices are paid in full, the factor collects its discount (generally between 1% and 2%) and forwards the balance of the reserve to the client.
Accounts Financing … Unlike receivables factoring, accounts financing is structured as an asset-based loan, most often a business line of credit. The client’s invoices are pledged as collateral for the loan, which, also unlike receivables factoring – a perpetual arrangement – generally has a fixed term of 3-5 years.
Accounts receivable financing will not work for every type of business. Companies that sell products and services exclusively to consumers or businesses who pay in full with cash or credit cards cannot ordinarily use it, since there are no receivables to sell or to pledge as collateral for a loan.
For any firm with creditworthy business or government customers, accounts receivable financing is a tool to build and sustain a thriving company. With an asset-based loan, a company can have a new business line of credit, giving it a ready source of business capital with the maximum flexibility possible. And for small and midsize firms, receivables factoring, an incredibly powerful and versatile tool, could very well be the only source of working capital financing available apart from the private funds of the owners.
About AEGIS Financial Solutions, Inc.: Since 1998, AEGIS Financial Solutions, Inc. has offered uncommon solutions to common problems using the fast, flexible and powerful resources of the cash flow industry and asset-based finance techniques. Helping people solve financial problems and get money when they need it most, without bank loans, is what we do best.
Press Contact:
Mike Lieber, President
AEGIS Financial Solutions, Inc.
88 E. River Bend Road
Fredericksburg, VA 22407
mjl@aegisone.com
PH: (540) 548-2270
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