How the Accounts Receivable Financing Process Works

When you rely on customers paying after the fact, your access to working capital may suffer. While your business model or industry may demand that you wait for payment 30, 60 or even 90 days after delivering goods or services, your funds are undeniably at risk. Fortunately, accounts receivable financing can help you turn that risk into an asset through a relatively straightforward process.

1. Account Setup

First, the financial company you’re working with will gather some information on your customers. This lets it determine the amount of risk associated with your accounts receivable, which in turn affects how much it’s willing to offer your business in exchange. Once the due diligence is completed, your account can be set up for future transactions.

2. Prepare Receivables

Your business has to select which receivables you’re willing to sell. You’ll need to gather the invoices and customer information, then send them to the financial company via a secure method. Companies can use fax, encrypted email or secure website to send and receive this type of sensitive information.

3. Verification

Once the company has received the information, it’ll verify the receivables with the customer. This step is to ensure that the financial company has the right invoices for the right customers, and that due dates and amounts are all correct.

4. Financing

Once all the paperwork is in order, you can expect to receive funds. This may be by an ACH or wire transfer, depending on the terms in your contract. It’s important to note that the amount you receive won’t be the full amount owed by the customers. As part of the agreement, you’ll only receive a portion of the invoice total, typically 80%. However, you’re guaranteed to get the funds whether customers pay or not, and you’ll usually get them within a day. In some cases, the 80% is an advance, and you’ll receive the rest when customers make their payments. Again, this depends on the terms of your contract.

5. Payment

Customers pay as usual. Generally, accounts receivable financing doesn’t affect the customer experience; customers continue to pay on their regular schedule and make the payments to your business name. However, these funds are then transferred to the financial company you’re working with.

6. Ongoing Partnership

Accounts receivable financing is rarely a one-time arrangement. Since your business model still includes delayed payment, you’ll likely continue to face issues with accessing working capital. Most businesses maintain an on-going partnership with their financer since the arrangement benefits both parties.

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