As published in Scotsman Guide's Commercial Edition, October 2006.
Accounts-receivable financing has been used for decades to improve working capital, enable businesses to meet payroll, improve credit terms and more. This flexible funding method can increase a business's working capital without having to use the traditional debt structure.
Accounts-receivable financing can be an alternative source of financing for companies that need to maintain a consistent flow of cash. Potential borrowers could include large corporations and small to mid-sized businesses.
To attract them as clients, it helps to know the basics of accounts-receivable financing.
How it works
A factoring company purchases the accounts receivables from the business at a discount. This gives the company working capital more quickly. For businesses that can't wait 30 to 90 days for invoice payment, this can be crucial.
This infusion of cash can help many companies manage valuable assets. These funds become unrestricted capital to be used for debt refinancing, equipment purchases, business growth, acquisition and other working-capital needs.
Any business that delivers a verifiable product or renders a service and generates an invoice usually can qualify for accounts-receivable financing. Because the funding depends on the creditworthiness of the business client -- not the creditworthiness of the business -- businesses with bad credit or new businesses with no credit may qualify. Further, a business with other lines of credit or debt may still qualify. Even Chapter 11 and tax-lien conditions may be considered by a factoring company.
Big industry players
Two possible accounts-receivable-financing opportunities are government vendors and the medical industry.
Many large government vendors have been factoring their goods and services for years. If they are on a government contract, these companies might encounter lag times in which they might have trouble meeting payroll or taking on additional contracts.
In these cases, the business client -- federal, state, county and sometimes municipal government -- has creditworthiness that appeals to many factoring companies.
Brokers who work with these vendors often should brush up on procedures for this type of financing, as detailed in the Assignment of Claims Act of 1986 and the Federal Acquisition Regulation.
The largest asset many medical practices have, unless they own expensive equipment, is often their accounts receivables. Health-care financial-service professionals often say that claims-processing is critical to their health-care provider's cash flow.
The challenge for brokers is to help health-care clients with industry-specific funding strategies that boost liquidity while preserving debt capacity. Funding can be customized for many different types of health-care providers, including surgery centers, medical labs, rehabilitation centers and hospitals.
Most medical-factoring companies will not work with monthly receivables that are less than $100,000 per month -- and those who will work for $50,000 a month are hard to find. Other factors place a minimum at no less than $200,000 per month with no maximum.
Other areas in which accounts-receivable funding also offers financing include business-to-business receivables, trucking, assisted-living facilities and high tech, to mention a few.
Accounts-receivable funding can help companies grow by improving cash flow. This may level the playing field by improving performance.
Most businesses that generate invoices for goods or services rendered, be they business or government, are candidates for you to work with on accounts-receivable financing. Indeed, this can be a proven, debt-free, flexible method of helping your clients increase their working capital.
Duane H. Marchant is president of abcCapitalFUNDING Company.
His company provides commercial financing, accounts-receivable financing, medical factoring and equipment leasing nationwide. A business can request a free accounts-receivable or health-care receivable quote. Contact information: (877) 624-1961 or firstname.lastname@example.org. Visit the company's Web site at www.abcCapitalFUNDING.com.