What Accounts Receivable Financing Companies Look For In A Client
by *Crazy Diamond*
Growing and emerging companies require immediate capital in order to facilitate their successful ventures. These start up companies often face a deficit of working capital needed for the smooth functioning of their daily operations as most of their capital is blocked in accounts receivables. In layman’s terms it means that the growing company performs the service or delivers the product to the client, and then bills them.
However as per business norms the payment is usually held up and cleared after about 30 to 60 days. This held up or to be cleared amount is the accounts receivable of the company rendering a service or selling a product. Since capital is blocked in accounts receivables, these companies have to look for alternative sources to secure continuous cash flow to meet their daily operational needs. Accounts receivable financing is fast emerging as one of the best funding options that emerging companies are choosing to solve their cash deficit problems.
Accounts receivable financing is the process of selling off the accounts receivable bills of the company to an accounts receivable finance company to secure immediate capital. The accounts receivable financing company provides funding to the service or product selling companies against their accounts receivables which act as collaterals. This process is relatively simple, requires no other collaterals and does not take much time for releasing funds.
The financing firm usually disburses the funds a range of up to 60% to 90% of the amount receivable for a fee that could range from 1% to 5% depending upon a certain criteria set by the financing companies for each company they are funding. These companies are the clients for the financing companies. So in case the company wants a funding for their accounts receivables from the accounts receivable financing company certain criteria have to be looked at while approaching them.
Accounts receivable financing companies look at the creditworthiness of the client’s debtors. Their debt records and performance records are taken into account. The age of the receivable is a consideration while determining the fundability of the client company, in case the receivable bill is as old as 90 days or more then no accounts receivable financing company will finance it. The client company also will not qualify to secure funds on their accounts receivables, if there is already loan secured on the same accounts receivable from a banking institution, unless the bank is willing to release its security interest on the receivable held by them.
The client company’s customer’s average repayment cycles, the factoring volume and the size of the invoices are also few more determinants an accounts receivable financing company will take into account while releasing the funds. Based on this, the financing company will give the client company 60% to 95% amount of the total face value of the receivable. The balance amount would be released after the invoice is cleared.
This type of financing can prove advantageous as the service rendering or product selling companies can free up their tied up capital and use it to maximize their growth and concentrate on business development activities rather than worry about collections and rising debts.
CNBC’s Squawk Box with Joe Kernen, Becky Quick and Carl Quintanilla, Sept 10, 2009. From Meredith Whitney’s website. www.meredithwhitneyllc.com Meredith Whitney is the CEO of Meredith Whitney Advisory Group, LLC, a macro and strategy-driven investment research firm. In 2009, Ms. Whitney was named as one of Time Magazines list of 100 Worlds Most Influential People and was ranked the #1 Investment Analyst in her category by The Wall Street Journal. In 2008, Ms. Whitney was named one of Fortunes Top 50 Most Powerful Women, The Wall Street Journals 50 Women to Watch, Smart Moneys Power 30, and Crains 40 Under 40. Ms. Whitney was also ranked in Institutional Investors 2008 All American Research Team. Well followed for her core research, Ms Whitney and her team also focus on a broad section of financials including large, small, and mid-size banks, brokers, independent commercial and consumer finance companies. Prior to founding Meredith Whitney Advisory Group, Ms. Whitney was a Managing Director and Senior Financial Institutions Analyst for Oppenheimer & Co. Inc. Throughout her tenure at Oppenheimer, Meredith was most noted for her research on the ultimate decline in home prices, the future of the US mortgage industry, and the consumer lending market, including specific focus on the credit card industry. In 2007, she wrote prolifically on the threats surrounding the weighted influence of the rating agencies on regulatory capital determinants and the risks of the monoline …
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affordability isn’t there she keeps telling us, and because of it, a drop is necessary. And based on your focal point, which is hers as well, here is her point on homeownership% – that without the credit, were going to tend to retrace back to certain percentage of the population who can maintain a home. Why this ratio established itself is unclear to me, but she has said elsewhere that home ownership ratios went up due to the governments creative credit financing programs for low incomes.
meredith i will fuck you like the whore that you are.
Home ownership is more a function of credit availability than supply. Even if home prices drop another 50%, if the number of loans banks are willing to provide are small the number won’t rise. Lets face it, the average person can’t put 20% down on a home or even 10%. Add onto that the negative national savings rate and it’s not hard to see that she has a valid point.
Yes, they will live in those houses, but they will rent them!
Meredith is totally wrong to use homeownership% to predict housing declines. Obviously, with a vast oversupply of housing built during the boom years, home ownership SHOULD be higher than the historical level as prices fall. SOMEONE will live in those houses. Real calculation depends on affordability.