Accounts Receivable Financing | Huntington Coast Capital

Accounts Receivable Financing | Huntington Coast Capital

 

If you are a business owner or financial manager, you know that cash flow management can be a challenging task. One tool that can help businesses address short-term cash needs is accounts receivable financing. In this article, we will provide an overview of what accounts receivable financing is, how it works, and the benefits to help you decide if it is the right option for your company.

 

Accounts Receivable

Accounts receivable financing helps businesses secure a line of credit by offering their accounts receivable as collateral. Accounts receivable are amounts that a company expects from its customers for goods or services that it delivered, but have not yet received payment for. Accounts receivable are company assets, because they represent future cash inflows that the company expects to receive. By securing a line of credit against your company’s accounts receivable, you are able to improve and level off the capital needed in your business. 

 

Mechanics

During your operations, your business will gradually accumulate credit from customers that have yet to pay for your products. However, you might need to pay recurrent expenditure like wages or bills and might require funds immediately. If the customers cannot pay within the time you require funds, a financing institution can lend you money minus the fee based on the amount of accounts receivable, business type, and industry.

 

Types of Accounts Receivable Financing

Accounts receivable financing is delivered in different forms depending on how the loan is structured between the financial institution and the borrowing entity. Asset sales, factoring, and loans are three types of financing arrangements that businesses can use to access funds based on their accounts receivable.

 

Asset sales

In an asset sale, a company sells its accounts receivable, a current asset, to a financial institution in exchange for immediate cash. The financial institution then becomes responsible for the credit and collection from the customer. Asset sale financing can be a useful option for businesses that need to access funds quickly and are willing to sell their accounts receivable at a discount. Also known as a “non-recourse” transaction, the invoices used as the collateral are purchased outright at a discount whereby the purchaser takes the risk of collection. This financing option is typically only available when the invoices being purchased are from large, credit-worthy institutions. 

 

Factoring

Factoring is a financial arrangement in which a lender provides a business with funds based on the value of its outstanding invoices. The lender evaluates the invoices and decides to fund a percentage of their value. The business then receives the funds upfront and uses them to cover everyday expenses. The lender charges a fee for this service, which they deduct from the proceeds of the invoice when the customer settles their debt. Unlike an asset sale, a factoring agreement is ongoing and accounts receivable are used on a daily basis as invoices are generated by the borrower. It is a line of credit that grows as the business grows using the accounts receivable as collateral. Advance rates range from 50% to 95% depending on the collection quality experienced by the business and industry as a whole. For example, in the temporary staffing and trucking industry, advance rates of 95% are fairly common because the invoiced amount is typically paid at full value. Conversely, in the healthcare industry where invoices are sent to insurance companies for payment, a much lower advance rate is given due to the reduced payments experienced in the industry (i.e. invoiced amount may be $10,000 and collected amount could be $7,500 based on what the insurance company deems as eligible). 

 

Loans

A loan is a financial arrangement in which a lender provides a business with a set amount of funds the business must pay over a fixed period, including interest. These are referred to as term loans. Businesses can use term loans to finance accounts receivable; however, the collateral is usually a blanket lien on all assets, including accounts receivable, in these scenarios. Term loans are used to cover fixed expenses such as acquisition of real estate, acquisition of a business, tenant improvements, new equipment, marketing and advertising, hiring, etc. Term loans usually include a 10-year amortization (the “fixed period”). Loans are the only option in accounts receivables where the business does not pass the accounts receivables to the financial institution. Rather, the accounts receivable are a part, together with other assets such as inventory and equipment, of the total collateral for the loan. 

 

Benefits

Unlike traditional business loans, institutions approve and fund accounts receivable financing quickly, often within a few days. Thus, this financing method makes it a good option for businesses that need to access cash quickly.

Many types of financing, such as business loans, require collateral to secure the loan. With accounts receivable financing, the only collateral is is the accounts receivable. This makes accounts receivable financing and attractive and easier to obtain form of financing to enhance the working capital of your business. 

Minimal paperwork and easy application process: The application process for accounts receivable financing is generally simpler and requires less paperwork than traditional business loans. This can be a significant advantage for businesses that are short on time or resources. There are fewer covenants and restrictions contained in accounts receivable financing contracts, making them an attractive option for most when compared to traditional bank financing. 

Accounts receivable financing can help businesses smooth out their cash flow and make it easier to plan for future financial needs. This kind of financing is especially useful to businesses with rapid growth but slow cashflows. They receive the funds they need and worry about debt collection later.

 

Contact us at Huntington Coast Capital to discuss your accounts receivable financing needs or call 844-239-2632. We look forward to bringing value to your business! 

 

Fix and Flip Loan of $2,500,000 Secured Through Huntington Coast Capital

Fix and Flip Loan of $2,500,000 Secured Through Huntington Coast Capital

 

Fix and flip loans

 

Huntington Coast Capital came to the aid of our client with a creative fix and flip loan solution! The client was on the brink of foreclosure and needed a creative fix and flip loan solution quickly!

 

The scenario: 

The borrower owned two high end properties with the intention of renovating and selling them. Work had begun with a local contractor and the improvement plans were on schedule.

 

The problem: 

After some initial work had been completed, the general contractor walked out on the job on both properties prior to all improvements being completed. This placed the owner in to a dire situation. Unable to complete the project and having paid the contractor his remaining cash reserves, the properties went in to default. Most projects in this predicament would most certainly be headed for foreclosure.

 

The Solution: 

Huntington Coast Capital was able to secure a lender that not only had the funds to rescue the project, but also had a familiarity with the area and realized the demand for homebuying in the neighborhood. As a added value, the lender was able to bring in a general contractor they were comfortable with to complete the project. This emergency situation was solved! The client is now looking forward to completing these two projects as well as future opportunities moving forward.

 

Do you have a residential or commercial fix and flip loan need? Call us at 844-239-2632!

 

About Huntington Coast Capital. 

 

Huntington Coast Capital secures funding for companies in a broad base of industries. Our clients come to us to find a more flexible lending partner to meet their growth needs. Many are declined by the bank and are in need of a more creative and entrepreneurial funding solution.

 

We consult on a wide range of funding options for business owners throughout the United States in the following areas:

 

  • Supply chain financing 
  • Equipment loans and lease programs (learn more about our equipment loan platform offered through our subsidiary)
  • Lines of credit for working capital needs
  • Term loans for marketing, hiring staff and general expansion needs
  • Factoring services for accounts receivable financing that also provides for back office credit and collection functions
  • Purchase order financing
  • Asset based loans
  • Business acquisition financing
  • Inventory financing
  • Private commercial real estate bridge loans
  • SBA loans for business and real estate needs

Whether you are a startup or established, in need of $100,000 or $10,000,000 we have the capital partners to meet your needs.

 

Contact us to see how we can assist in taking your business to the next level. To your success!

 

Patrick Zazueta
Huntington Coast Capital, Inc.
Direct: 714-719-8966
patrick@huntingtoncoastcapital.com
www.huntingtoncoastcapital.com

BRE License #: 02090967