If you’re a business-to-business service-based company, you may have outstanding invoices with a good portion of your customers and clients. Unfortunately, it can take time to get payments in from client invoices and cash flow may be lower than the cost of expenses. Accounts receivable financing is a simpler way than traditional lending to get the cash you need to fund your business operating expenses. Before you apply for this type of financing though, you want to be sure that the specific type of financing you choose is right for your business. Consider these three helpful questions from the alternative financing experts at Allied Financial to help ensure you are making a solid decision.

Is the Company a Factoring Company or an Accounts Receivable Financing Company?

Compared to traditional lending, in which the loan is based on cash flow, strong financial ratios, credit history, profitability and net worth of the company, assets-based lending doesn’t rely on these credentials to determine the company’s ability to pay back the loan or line of credit. Instead, it takes into account your existing client invoices as their future repayment. In this type of business, there are usually two different methods of financing: The first is called invoice factoring. With this method, the factor will determine which invoices they want to purchase based upon their credit strength, subsequently the factor will confirm the invoices with the account debtor and then your invoices are sold to the factor who then pays you 70-85{169eece2392127c105803f4d779fa98fc8a34d604aa2c35f50e3ab25ff870daf} of what the invoices are worth. The factor will contact any customers who have yet to pay in accordance with the agreed terms to receive full payment. The factor typically charges higher fees than an accounts receivable finance company in order to compensate for the additional work that goes into each transaction, coupled with the additional credit risk and may also hold ongoing reserves.

The second is accounts receivable (A/R) financing, which uses your outstanding customer invoices as collateral for any working capital loan or cash advance. You retain ownership of your invoices and generally your customer continues to make payments to your company name, just as they would if you had not taken out a line of credit on their invoice. There are no reserves and the interest and fees are generally a good deal lower.

Many factoring companies like to label their financing as A/R financing, regardless of whether it follows the A/R model or the invoice factoring model. Because of this, it is important to review the terms of the agreement to know which method of financing will be used in your situation. Factoring companies are often much less discreet, which leads us to the next important question:

Will the Company I’m Using Be Contacting My Customers?

As mentioned above, some methods of financing require that the lender contact the customers for payment, rather than the business. Because of this, businesses may have to disclose their financial status to customers explaining why a lender or separate finance company may be contacting them routinely, especially as their payments will need to be made payable to a different company and address than what may be listed on the invoice.

If you don’t want your customers to know that you’ve used their invoice to secure financing, you should double check with that company to ensure they won’t contact your customers directly.

Allied Financial Corporation is a discreet lender that will not contact your customers or disclose their relationship with you unless specifically requested.

Which of Your Invoices Would Qualify Under the Company’s Guidelines?

In order to receive the amount of working capital your business needs, you must have the appropriate amount of A/R to support the loan. However, different companies have different guidelines and rules as to which of your invoices qualify.

Generally, factoring companies look at the strength of the account debtor as the most important qualifier. Big companies are more likely to qualify as they are seen as more stable and trustworthy. Privately held, small companies are less likely to qualify due to a lack of public financial information that is available. Assuming a small, family run business does not share their financial information with the major credit bureaus, the factor may most likely take the position that the small business is much more likely to suddenly go out of business than a larger, national corporation with stockholders and financial information available. The small business is seen as a riskier invoice for the factoring companies to purchase and they will generally not accept it as part of the financing collateral.

If you mostly do business with big box stores and well-known brands, this may not be an issue for you. However, if your company does business with all different sized companies including small, local companies, you may have few—if any—invoices that qualify under these strict guidelines.

However, with Allied Financial Corporation, you’ll find more flexibility when it comes to which invoices qualify. This means your business may be eligible to receive a larger working capital line of credit. We don’t make our qualification decisions based on rigid requirements because we see your business as more than just a series of numbers. It is our goal to truly get to know your business and customers.

Contact Allied Financial Corporation to Learn More About Our Accounts Receivable Financing

When looking for alternative business financing, consider the unique benefits of working with Allied Financial Corporation. We offer no upfront fees, no monthly minimum borrowing requirements, no prepayment or termination penalties, no reserves, no audit fees, and no credit committees!

Speak directly to a decision maker today to learn more about how Allied Financial Corporation can help your business get the financing it needs in as little as five business days.