Corporate Asset Funding

ACCOUNTS RECEIVABLE FUNDING

The process of transacting accounts receivable in the secondary market or Accounts Receivable Funding is called factoring .

Factoring is the purchase of accounts receivable from a business at a discount. Factoring allows businesses to collect the money they are owed immediately by accepting a discounted (reduced) amount of the invoice from a third party.

In a factoring transaction, a business sells one or more invoices to a factor.
A factor is a funding source that specializes in funding accounts receivable.

When a Business Factors an Invoice, the Process Occurs as Follows:

  The factor advances a certain percentage of the invoice amount to the business.
  The factor also holds a percentage of the invoice amount on paper as a reserve
  The factor assumes the right to receive payment on the invoice.
  The business' customer submits payments directly to the factor.
  The factor rebates the business the reserve amount upon receipt of payment.

All of which will allow your business to:

  Meet payroll, including paying payroll taxes on a timely basis.
  Pay past due bills or other current obligations.
 

Take trade discounts or take advantage of purchasing in larger quantities.


ASSET-BASED LENDING

Asset-based Credit Line

An asset-based credit line is a revolving line of credit collateralized by the assets of a business. Those assets include accounts receivable, inventory, machinery and equipment and real estate.

When a business receives an asset-based line of credit, the amount of credit available to the business fluctuates based on a percentage of its current assets.
For example, as inventory is sold in the normal course of business, the proceeds from these sales go to repay the line. The amount of the collateral changes daily, so the asset-based lender must monitor the value of its client's collateral continuously and adjust the amount of the outstanding loan accordingly. This is also known as formula lending.

An asset-based credit line is structured as a loan, not as a purchase; therefore, providing this type of credit facility is called asset-based lending.

Equipment Leasing

Equipment is valuable to a business because of what it produces, not simply its ownership. Just as a business "rents" its employees, i.e., office workers, warehouse personnel, etc., either via paying them a salary or using an employment service, it is never paid for in one lump sum - one year's salary for instance.

In the same manner, why should a business pay in advance for the services provided by machinery and equipment. Why not match the out of pocket expense to the incoming cash flow generated by the business.

 
 
   
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