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What is Account Receivables Funding?
Accounts Receivable Funding is the transaction of accounts receivable (or invoices) between a business & a third party called a factor. The business generates invoices when it bills its business or government clients for goods or services provided; the factor is a funding source who specializes in A/R funding, & agrees to purchase the business’s receivables at a discounted rate. Overall, businesses who utilize A/R funding as a business strategy agree that it is the easiest, fastest, and least expensive way for a business to raise working capital and improve cash flow.
Why Use Receivables Funding?
 Raise capital without creating debt
Improve the cash flow of your business
Take advantage of discounts on materials
Make payroll
Pay back taxes
Let someone else handle the collection process
Approval is solely based on the credit worthiness of your client. Even if you have had a bankruptcy, tax liens or slow pays in the past, Key Capital Group, LLC can get you funded through our investors, usually in five to ten working days, provided your customers are approved for funding.
The difference between advance funding with a private investor and a bank loan is that in factoring you use your customer’s credit line as leverage, not yours. A bank loan is based only on your assets and the ability to repay the loan . When you factor, there is never a loan to repay. Your growth potential, based on the credit worthiness of your customers, is virtually unlimited. Simply put, the more credit worthy customers you choose to sell, the higher your credit line becomes.
Don't change anything about the way you do business!
Key Capital Group, LLC can provide funding for all your business needs. We can set up a credit line for you and your company that will effectively multiplty your working capital by 'turning it' more often. Compared to a bank lines, the "credit line" created when factoring uses far less collateral, requires only minimal amount of paperwork, and can be in place in a minimal amount of time.
The credit line compliments any loans that you have or are seeking, yet allows you to access additional funding. There is no faster financial service available for businesses. N ine out of ten times receivables funding is less expensive than a bank loan, which charges closing costs, origination fees, points, as well as interest.
If your business sells products or services to other businesses or to the government on terms --a line of credit which can range anywhere from 30 to 120 days or more before payment is due-- then you are a strong candidate for factoring. When you factor your invoices you immediately receive a percentage of your cash. The remaining balance, minus a discount fee, is then remitted once your customer pays the invoice. The advance is usually paid within 24 to 48 hours upon receipt. The rest is held as a bad debt reserve until the customer pays the invoice. Upon payment, the factor calculates its fee and deducts it, before remitting the remainder to you.
The advance and fee are based solely on the factor's determination of the value of the invoice, which is based on the terms of the invoice and the credit of its payor. Your credit is not material to its value. Factoring is, in essence, the discounted purchase of an invoice. Once an invoice is factored, the funding source effectively owns it-- payment on the invoice goes to the funding source.
Please do not make the mistake of confusing factoring with lending. Most sources of capital for your business will offer you a line of credit with interest. Before such a transaction can be completed (if in fact you even get approved), your credit, both business as well as personal, is scrutinized to the utmost degree. For business owners, the tremendous value of factoring is that their company is able to immediately sell any invoice or invoices of its choosing, to create instant cash at any time prior to their payment.
Once you understand how factoring can help grow your business or just allow it to survive, you'll think long and hard before using your accounts receivable again as loan collateral. Banks will very rarely lend more than 50% against them, and the resulting lien ususally renders them ineligible. However, if you already have any number of collateralized loans, you can do your best to clear these liens --once you have decide that factoring is right for you and your company-- by factoring current and available invoices and then paying off those loans.
Once your company decides to factor, you will need to fill out a brief client profile to which you will add a recent Accounts Receivable Aging Summary. The importance of the aging summary is that it will take note of those customers who typically make late payments and might therefore be ineligible or too expensive for factoring.
The due diligence involved with setting up an account usually takes one to two weeks and may require an initiation fee, but that will only impact the initial invoice. The fee does not affect the worksheet, only a completed application. The fee varies by factor. Unless you are in the health care industry, where the due diligence investigations are far more costly and thorough, any fee is strictly nominal, and will usually weed out the window shoppers from the serious clients.
So, what are you waiting for?
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