Accounts Receivable Factoring

Accounts Receivable Factoring and Asset-Based Commercial Lines of Credit in San Diego

Lack of cash flow makes it difficult for many San Diego business owners to grow their business. However, both accounts receivable financing and asset-based credit lines are feasible solutions for most companies in this situation.

Accounts Receivable Factoring:

When banks won’t give you a loan, it’s time to approach a financial services company that offers accounts receivable factoring (also known as invoice factoring). This is when a factoring company purchases invoices from your company, collects the money from the outstanding invoices, and keeps a small fee for providing your business with both cash and collection services.

The process is reasonably straightforward. Basically, all you need to do is complete an application and provide the factoring company all the essential information about your business and accounts receivables.

How does it work?

You can sell one or more of your outstanding invoices to a factoring company for slightly less than the amount owing on them and receive cash for them immediately.

The factoring company then collects the money owing on the invoice from the debtor.

The fee that the factoring company charges is generally 2-3% of the invoice total

Example:

  • You complete work for a client and the result is a $5,000 invoice.

  • You sell that $5,000 invoice to a factoring company and receive $4,500 immediately.

  • When that invoice is due, the factoring company collects the $5,000 that is owed from your client, keeps around $150 and sends the remaining $350 to you.

In the end, you receive almost the entire amount of the invoice without having to wait for it and without having to go through the trouble of collecting it.

Essentially, you get a short-term loan for a reasonable rate, plus you also get to outsource your collection service for no additional cost.

Is Invoice Factoring a Good Option for Your Business?

Many businesses use invoice factoring to deal with temporary cash flow shortfalls. One of the best things about invoice factoring is the flexibility it offers. If you require cash to cover expenses for the next three weeks, for example, you can figure out how much cash you need and sell as many or as few invoices as you need to cover those expenses. The ability to generate cash from invoices allows a business to grow quickly.

Asset Based Commercial Lines of Credit

An asset based commercial credit line is basically a line of credit provided to a small business and secured with an asset the small business owns outright. This asset could be an account receivable, property, equipment, inventory or anything else of value the business can offer for collateral.

If the small business cannot repay the money it is borrowing, the finance company can take possession of the asset put up for collateral, much the same way a bank would if a borrower defaulted on a loan.

The amount you can borrow is determined by a Borrowing Base Certificate (BBC). You complete a BBC on a monthly basis that will show the approximate value of assets like your accounts receivables, equipment and inventory. Generally, you’ll be allowed to borrow up to 80% to 90% of the value of your total assets.