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Pennsylvania Receivable Financing
Accounts Receivable Financing (AR financing)Accounts Receivable Financing is a line of credit secured by a Pennsylvania company's account receivables. Generally speaking, we establish a "formula based" line of credit based upon your eligible receivables. Eligible receivables are usually considered receivables within 91 days of invoice date. Normally, we will arrange an advance rate of up to 85% of the Eligible Receivables. It may be easier to think of AR financing as nothing more than a revolving line of credit.
The mechanics of AR FinancingA business credit line is established. Generally, the line will be somewhere in the neighborhood to the equivalent of one to two months worth of your Pennsylvania PA companies sales. The credit line allows your business to draw from the line as needed. The draw is limited up to 90% of value of the combined accounts receivable outstanding. Unlike factoring, verification and notification are not an issue, thus your customers will not know that you have a credit facility in place. However, AR financing usually requires that customer payments are sent to a lock box that is controlled by the lender. Remember, unlike factoring the customer is not contacted for verification or notification and checks are written out to the seller. As the accounts receivable payments are received they are applied to the outstanding loan balance to reduce the loan amount that was previously drawn from the line. At the end of each month, an interest rate is paid on the outstanding daily balance of the loan. Interest rates vary widely depending on the bank or finance company. The rates are usually tied to the “Wall Street Journal Prime” lending rate. Normally, rates run between prime plus 3 to prime plus 6, however it is not unusual to see rates as high as prime plus 10 (sometimes even higher). Our typical clients:
When the payment of the invoice is received by the factor, the factor deducts their fees and passes the remaining funds (known as the hold-back or reserve) back to the seller. Note: the reserve is normally paid out at the end of the month regardless of when the payment was received.
Just because a business begins its life without support from a bank, it is not unusual for a business to eventually position itself to attract some form of bank financing. Knowing that a bank will not even consider financing until a business is at least two years old, the question becomes, what do we do along the way?
Franklin Financial Company has simple leasing and financing of business and professional equipment from $5,000 to $3,000,000 at very competitive effective rates. Franklin Financial offers an educative approach to offering you its Account Receivable Financing Services. We look forward to assisting you with your lending needs.
After our initial consultation, you will know exactly what we can do for you and your business. Complete either our online Pre-Application or Quick Contact Form. Just because you have been turned down by another bank should not stop you from speaking to us.... Receive AR Receivable Financing Today!  |  |   |
Short time in business.Which is less expensive, AR Financing or Factoring?Without question, AR financing is less expensive than factoring. Remember, with AR financing a company is paying an interest rate against an outstanding loan balance; with factoring a company is paying a discount rate against the face value of the invoice. For a moment let’s pretend that a factor is charging 3% per month and a finance company or bank is charging 3% per month for AR financing. Let’s assume that there is an 80% advance rate from both entities. Factoring $100,000 at 3% discount would cost the company $3,000 at the end of 30 days. AR financing would only cost the company $2,400 because they would have been charged an interest rate only against the advance and not the face value of the receivable. The cost of AR Financing and factoring becomes even more noticeable when you plug into the equitation a more realistic AR interest rate:
It would be nice if every business that needed to factor or finance their accounts receivable could qualify for AR financing. All things considered, AR financing is relatively inexpensive and in many cases, AR financing is not out of line with traditional bank financing or even an SBA loan.
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