If a business needs working capital and currently its bank isn’t willing to provide a loan or line of credit,
what are the alternative means of financing?
For a business-to-business (B2B) company, one of the easiest to obtain sources of funding is accounts
receivable financing.
Accounts receivable (AR) financing is a way for businesses to get cash by using their unpaid AR.
The two main forms of AR Financing are invoice factoring and asset-based loans (ABL).
Invoice factoring provides cash flow and working capital to a customer when a company sells its unpaid
invoices (the receivables) to a factoring company. In return, the factoring company provides the client with
immediate cash, which is typically an agreed-upon percentage of the invoice amount. Once the invoice is
paid, the remaining balance - minus a fee - is paid to the client.
Invoice factoring gets a client paid faster than waiting for their customers to pay invoices. In fact, once a
factoring line is set up, invoices can often be financed within 24 hours of the invoice being issued. This
speeds up cash flow and provides working capital for the client to pay operating expenses and grow without
adding debt and increasing leverage.
An asset-based loan (ABL) is a revolving line of credit based on the value of the assets that have been
pledged as collateral for the loan. Collateral can include accounts receivable, inventory, equipment, and, in
some cases, real estate. The acceptable asset mix depends on the lender and the type of collateral they are
willing to loan against. For Commercial Funding Inc.’s ABL loans, AR must be the primary collateral that
it lends against with a smaller amount available towards inventory, equipment, or real estate.