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Selling Accounts Receivables Can Provide Quick Cash

For middle market companies with $5M+ in revenues, access to financing is really a question of the type of capital and the terms, not whether their investment banker at Corporate Finance Associates can arrange any capital at all.

Also called factoring, accounts receivable financing involves assigning a discounted present value to the age of a receivable. Current invoice will pay up to 80% of face value, whereas accounts receivable over 120 days typically are not financed. A monthly interest rate is calculated by applying a daily percentage rate to the receivables outstanding each day (the less the outstanding receivables, the lower the interest charge).

Benefits of Accounts Receivable and Purchase Order Financing

  • Outsource Collections: Outsourcing your accounts receivable management, frees up your resources to focus on other more productive activities such as manufacturing and selling your company’s products.
  • Free Up Working Capital: Cash flow problems arise when supplies require C.O.D. payments, but customers pay on net 30 day or net 60 day terms. Financing customer purchaser orders enables a company to free up capital tied up in inventory, or in goods that are in transit to buyers.
  • Quick Financing: Accounts receivable factoring does not require a business plan, or income tax returns. Rather, underwriting is done by reviewing the quality of the accounts receivables, and results in prompt funding, typically in 2-4 days.

Accounts receivable funding can be the difference between company survival and bankruptcy. CFA’s investment bankers can help you evaluate your financing options, including the commercial finance firm providing the financing. In the end, using accounts receivable financing can be a useful short-term tool in providing financing, which gives a company time to eventually qualify for other debt capital, or raise capital by selling equity securities.

For more information, read “The Corporate Finance Shift to Asset-Based Loans, Part I,” by Brian Ballo, a Managing Director at Corporate Finance Associates.