Leverage Account Receivables for Cash Now.
$825 billion in unpaid invoices in America? If you own a business, you probably know what it’s like to have people owe you money. That’s where accounts receivable financing comes in. You can gain quick access to cash by selling your purchase orders or receivables so you can get back to business as usual.
What is Account Receivables Financing?
Accounts Receivable Financing is a type of asset-based financing solution that allows business owners to free up unpaid receivables. Upwise advances you cash collateralized by your account receivables, giving you an excellent way to put money back into your business. With A/R financing, you can get a fast advance of about 85% of the value of your receivables.
A/R Financing Details
$100K - $10M
Based on When Customer Pays Account Receivable
Under 18%
As Fast As Same Day
Account Receivable Financing Pros vs Cons
PROS
- No Need to Wait for A/R Payment from Customers
- Based on Credit of the Receivable's Business
- Low Interest Rates
- Account Receivable is Used as Collateral
CONS
- Lengthy Paperwork
- Can be Higher Fees than Other Traditional Financing
- A/R Must be from Reputable Companies
- Fees are based on time it will take for A/R to be paid
How Does a Account Receivable Financing Work?
When a customer owes you money and has an outstanding invoice, this is known as an account receivable. Basically, money that is owed for goods or a service already delivered to your customer.
AR Financing works by leveraging your account receivables as collateral for a loan. In simpler terms, the money that your customers owe you can be used to help you qualify for a small business loan, line credit or cash advance.
Who Qualifies for Receivables Financing?
Any business with a business-to-business model can qualify for A/R factoring, as long as they currently have outstanding receivables.
Here’s the deal.
These lenders don’t care as much about your revenue, profitability, or time in business.
Since your account receivables will act as the loan’s collateral, lenders just want to make sure the invoices make sense for them to finance. The rest of your business isn’t too important.
The maximum amount you can qualify for depends on the total amount and quality of your invoices, as well as on your creditworthiness.
It is important to note that some accounts receivable financing lenders take a look at your credit report, too.
Account Receivables Financing Requirements
Over $200K
Over 600+
1+ Years
Positive Payment History
* Note: These account receivable financing requirements are based on previous Upwise customers and is just an average.
What Does Account Receivables Finance Cost?
As we’ve mentioned, invoice financing can be an expensive way to receive funding for your business. But it’s essentially the cost of having cash on hand now, instead of later.
Here’s a snapshot into what the cost structure would look like.
Financing & Fees of Accounts Receivable Financing
Let’s say you have a $100K invoice with 30-day terms.
A financing company might immediately advance you 85% of that amount—$85K—and hold $15K in reserve.
Your customer then pays that invoice 2 weeks later. After subtracting the 3% processing fee of $3K, the financing company keeps its factoring fee—1% per week, which in this example is 2% or $2K—and gives you the $10K left over.
Why is Account Receivable Factoring Worth the Cost?
You might be feeling like $5K is a steep price to pay—but that all depends on your business’s financials.
If you needed money to make payroll a week after sending out that invoice, then your accounts receivable financing fees don’t seem too bad after all.
If you have an invoice, that is NET 30, 60 or even 90 days – getting funds immediately could be well worth the cost.
Your business’s financial situation might seriously benefit from extra cash flow—so capital right away could definitely outweigh the negative of those fees.