Infocusselling’s Blog

June 17, 2009

Enhancing Business Cash Flow

Filed under: Uncategorized — Educated and Aware @ 11:25 pm
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by Craig Buehler, Monon Financial Services

It is essential for every business to have access to cash. As banks reduce or eliminate lines of credit and eliminate cash out on property refinance, how can companies gain access to working capital?

Unsecured loans are very difficult to find and today’s lenders require that tangible assets be used as collateral. Companies that lease their space and have vehicle or equipment assets find that lenders place such a low value on these assets that it is difficult to use them to obtain the capital they need.

Accounts Receivable or A/R financing has been around for decades and while not sexy, can be an effective way to unlock capital. When a company issues an invoice to its customer there is no doubt of the value – it is the amount owed! A/R financing is based on advance rates and discount rates. The advance rate is the percentage of the invoice the lender will forward to the company when the company issues an invoice to their customer. An underwriter determines the advance rate – typically 70% – 90% of the invoice. The discount rate is the amount the client is being charged for the money being lent. Generally the discount rate is 2.5% – 4% for each 30 day period.

Example: Company A has an invoice to Company B for $1,000.00 with an advance rate of 80% and a discount rate of 3% for the first 30 days and 1% for each subsequent 10 day period. The lender “buys” the invoice for $800.00 which is paid immediately to Company A. Company B remits payment to the lender after 38 days. The discount rate is 3% + 1% for a total discount of 4%. The lender has already paid $800.00 for a balance of $200.00 less the discount fees which amount to $40.00 in this case. So the lender promptly pays Company A $160.00 and the transaction is complete. Company A gained immediate access to most of the invoice funds ahead of when the client would have paid for services thus improving cash flow.

The beauty of A/R financing is just about any company can use this form of financing – even young businesses which have very few other options for accessing cash. The more you need cash, the more you may want to look at Accounts Receivable financing.

Craig Buehler is president of Monon Financial Services, a full service leasing and funding brokerage which specializes in helping clients find and conserve working capital. He can be reached at or 317-815-8617.

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  1. Craig,
    You did a great job with this article. As one (The Interface Financial Group) who provides A/R funding to my clients, I appreciate your promotion of this debt free funding option for businesses. Most business people are not aware that they have assests in the form of accounts receivable that they can sell for cash to accelerate getting paid now rather than later and now you have provided them with that information.

    Comment by Jim Hayes — June 18, 2009 @ 3:59 pm

  2. Jim,
    Cash is going to be really important and really scarce for the next three to five years…at least. Companies that know how to access it will grow and those that don’t or can’t will be stifled. Growth requires cash, it’s like fertilizer.
    Jeff Bowe

    Comment by infocusselling — June 23, 2009 @ 12:32 am

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