Accounts Receivable (AR) and Purchase Order funding for the service and supplier industry industries.
A quick overview, AR funding explained:
AR funding has been used, worldwide, in the financial industry for thousands of years. AR funding is one of the quickest and easiest ways for a business to get immediate cash. AR funding is used to quickly access cash when credit terms are extended to customers.
AR funding is a standard financial tool that is used in many businesses. As the banking industry and business practices evolve & change, other financial tools are being introduced to the field to better manage businesses and the very life blood of any business --- cash flow or money! AR funding is an example.
In the service and supplier field, payments are often delayed for months --- waiting for payment(s) from companies for goods and services – new and old. Meanwhile, the service provider needs immediate cash for payroll, taxes, operating expenses, replenishment of inventory, advertising, to purchase new or necessary equipment, expansion, insurance premiums, credit protection; or, to simply provide daily living expenses for the principal(s).
Normal banking practices (lines of credit, personal & business loans, credit cards, etc) are often difficult to establish and manage. Also, these money sources can be very expensive --- and, can kill profitability. As a rule, banks are more concerned about cash flow, personal and financial history of the principal and other assets, such as real estate, before extending credit. Further, banks usually require a personal guarantee. Rarely are these a requirement for AR funding.
On the other hand, AR funding offers a quick, inexpensive option to access cash --- rather than waiting weeks or months. AR funding is based on the creditworthiness of the entity paying the invoice. In the medical field, that entity (paying customer) is usually insurance companies or Medicaid/Medicare.
The application process for AR funding is short and quick. Applicants can usually be approved in a matter of a few days and limited documentation is required --- as opposed to most other money sources. Once the necessary documents are in place, funding can be made in a few short days. If requested, money can be normally be delivered via ACH directly into the businesses bank account.
Keep in mind, AR funding is NOT a loan, thus the company’s Balance Sheet is not compromised with additional debt. By using AR funding, the business has immediate cash-in-hand --- rather than outstanding invoices awaiting payment. The Cash Flow Statement and bank account get an immediate infusion of cash --- in a day or two --- not weeks or months! The outstanding invoices serve as the collateral for the AR funding.
There are no set terms for repayment, no required monthly payment and no high interest rates. Repayment is made when the invoices are paid by insurance or Medicaid/Medicare. The collateralized invoices are discounted a small amount to fund the AR Funding transaction. This small discount is the only expense of the transaction.
Generally speaking, even if the company or its principals have had financial problems in the past (credit problems, bankruptcy, tax issues, etc.) these problems will not necessarily disqualify AR funding request. For example, the company or its principals may be facing IRS problems or taxes problems these can be looked at on a case-by-case basis. Often, these problems can be satisfied through an aggressive cash flow management program such as AR funding.
AR funding is NOT a collection agency or a third party billing agency. AR funding is a commercial money source. It works fully within the company’s current accounting system(s); consequently, there are no expensive accounting changes or additional training required or needed. AR funding may be the tool to supply you with the capital you need – to survive and thrive for your future…..