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How Receivable Funding Works

Receivable Funding is sometimes called A/R funding, invoice financing, or factoring. The process is very simple and can be a great solution for businesses that want to take control of their cash flow.

The Funding Process

Invoice Customers - continue to service your customers as usual. When preparing the invoices update the remittance address to the finance company's lockbox. A letter is included with the invoice explaining that your business has entered into a relationship with a finance company and been given an "unlimited credit line in conjunction with receivable management services". As a result, future payments should be sent to a new PO Box.

The finance company will manage the PO Box, reconcile payments, and provide detailed reports for your review.

Funding - after the invoice has been verified, the finance company will wire the advance into your bank account. The wire is usually received within 24 hours after invoices are submitted for funding. The advance is typically 70%-90% of the total invoice amount

No More Waiting for Payment - the finance company waits for payment from your customer. You are not longer waiting 30, 45, or 60 days for payment. You receive the bulk of your invoice within 24 hours.

Payment Received - when the invoice is actually paid by your customer, the remaining reserve amount will be wired into your account less the predetermined discount fee. The reserve is the remaining 10%-30% that was not advanced in the first funding.

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Example

Joe started his business, Joe's Staffing Service Inc. He supplies nurses to several hospitals in the area. He invoices the hospitals weekly for the hours the nurses worked at each hospital. After the invoices are mailed, he receives payment in approx. 35-45 days. Unfortunately, the weekly payroll demands are causing a "cash crunch" while he is waiting for the hospitals to pay their invoices. In fact, the cash crunch is hindering his growth because he can not take on any new business and continue to meet his weekly payroll demands.

Joe hears about receivable funding and realizes this could be the answer to his cash dilemma. He sends his invoices to his finance company each Wednesday and receives a wire into his bank account on Thursday morning. Joe now has the money in his account to meet his weekly payroll. The wire is called the “advance”. The advance is usually 70-80% of the face value of the invoices. The remaining 20%-30%, called the “reserve”, will be wired into his account when the invoice is paid by his client, less the finance charge.

How do I Get Started?

The Process is Simple & Quick

Simple Application - an application will need to be completed. The application can usually be completed in 10 minutes.

Minimal Paperwork Required - the finance company will need information about your business, such as an A/R Aging report, Customer List, Financials, Articles of Incorporation or DBA Filing, etc.

The paperwork is minimal as compared to a bank which requires business plans, cash flow projections, estimated earnings, etc.

Due Diligence - the finance company will perform their due diligence with includes reviewing the outstanding receivables, verifying the credit worthiness of your customers, running UCC searches, etc. They will check for existing liens on your receivables. They will review the average size of your invoices, the frequency of invoicing, and length of time needed to collect on invoices. This can usually be completed in 4-8 business days.

Documents Prepared - final documents will be prepared for your review and signature. Your account is now ready for funding

Fund Your Account - send in invoices and start funding!!

The entire process can usually be completed in 1-2 weeks!!