CAPITAL FOUNDRY
Capital Foundry Funding
TRADITIONAL BANK LEVEL SUPPORT WITHOUT THE NEED TO BE BANK READY
Established by industry veterans, Capital Foundry Funding is rooted in traditional banking principles, allowing for traditional bank support without the rules and regulations of a traditional bank. Oftentimes, businesses seeking alternative sources of capital are not considered bankable by traditional banks due to a multitude of reasons including a lack of historical financial statements, year by year fluctuations in revenue, and changes in management. Capital Foundry Funding’s experienced team of management is able to work creatively and flexibly with businesses in ways that traditional banks are unable to. This allows for clients to receive traditional bank support without the necessary qualifications of traditional banks.
What is AR financing?
In accounts receivable financing, a business sells or borrows against its outstanding invoices or receivables at a discount, to a specialized finance company. If the receivables are sold, the finance company then assumes the risk of those receivables.
Instead of the business waiting to receive the full value of the receivable in the future, the business receives an immediate cash payment from the financing company in exchange for the rights to receive the full amount of the receivable.
If there is a loan against the receivables, the credit risk remains with the borrower.
How it works
Functionally speaking, accounts receivable financing is similar to a business selling debt to a collection agency – a business gives up the right to get paid by its original customer and in exchange the financing company gives the business an immediate cash payment. The customer still owes the amount due on the invoice, but now they pay the financing company instead of the business.
All of this happens behind the scenes and the business’s customers still follow the same payment process they have in the past.
Advantages
Fast cash on hand
Your company may need immediate cash for a variety of reasons such as buying raw materials, buying inventory, doing renovations or making payroll. Of course, cash usually comes from customers who pay for your products or services. However, if customers are slow to pay their bills, your business might need to look for other ways to cover your expenses during a cash flow crunch. So if raising cash is an immediate need and you are having difficulty getting sufficient funds through other means like a bank loan or line of credit, accounts receivable financing can be an effective option.
With accounts receivable financing, you can often receive cash within 5-to-10 days, and sometimes even faster, within 1-to-2 days.
Time saved
Accounts receivable financing can save you time and effort that would otherwise be spent on collecting money due from customers. Since most factoring arrangements will include the process of obtaining the money from customers, it’s one less thing you will have to worry about. Outsourcing your accounts receivable management to another company frees up your resources to focus on other more productive (and lucrative) activities such as selling. The factor will take care of getting the money, and the factoring company is on your side – after all, they definitely want to get paid. And you can use the time and money normally spent on collections and redirect it to making money and building your business! Sales, marketing and client development can all use your excess time and money.
Using accounts receivable financing is a way to take some stressful items off of your “to do” list.
Frees up working capital
If you run a retail business, your business likely has the majority of its capital tied up in your inventory. Accounts receivable funding can quickly free up some working capital, so you can use it to buy more inventory and grow your business. You don’t have to worry about missing a great deal on inventory if you have cash ready and waiting. Or you can use the instant cash to generate growth by hiring another salesperson who will bring in more business, or spending money on marketing to reach new customers, or buying a piece of equipment that will accelerate production.
Instead of watching your capital sit idle on your balance sheet (in the form of unpaid invoices), accounts receivable financing can help free up this money and put it to work in growing your business.
Retain ownership of business
Another option for business finance is to raise capital by selling equity in your business. But many small business owners do not want to give up ownership (even partial ownership) of their business. Often small businesses and startups have to rely heavily on outside investors in order to keep running and growing. While this might seem like a good idea, it does force you to give up a percentage of your company ownership each time you go back for more funding. Accounts receivable financing is not like this.
With receivables financing, you will retain sole control of your company while still getting the capital you need to operate.
How it works
To fully understand AR financing, it is helpful to walk through an example.
Company A has $100,000 in outstanding receivables and could use that money today to launch and grow a new line of business. If Company A engages Capital Foundry Funding (CFF) for AR funding to support its growth, CFF will advance to Company A a certain percentage of the total amount of your outstanding receivables. This amount typically ranges from 75 to 85 percent, and is based on a variety of factors including the age of a receivable and the quality of the receivables.
In setting this advance rate, CFF evaluates Company A’s customers and how likely they are to pay their bills. Said differently, CFF calculates the risk that a customer will not pay for the goods or services they received. Company A has large corporate customers with solid credit like Target or Budweiser, so CFF will advance a larger percentage of the receivable because there is relatively low risk that those customers won’t pay, in this case CFF makes an $85,000 advance to Company A. CFF assumes the risk of Company A’s receivables.
Once the receivables are paid, Company A gets the difference between the face amount of the invoices and the amount that the factor kept in reserve (that 10-25 percent of your total receivables), minus CFF’S fee. In this example, if all the receivables are paid in full, Company A receives back the $15,000 that CFF kept in reserve, minus CFF’s fees.
Industries that utilize
the service
STAFFING
AR financing is a great option for staffing organizations. In addition to funding payroll, a line of financing from CFF provides quick funding that staffing organizations need to grow the company. CFF has provided financing for healthcare staffing, IT staffing, office staffing, hospitality staffing, security staffing, and many other staffing organizations needing to expand quickly.
TRANSPORTATION
AR financing has proven time and time again to be an excellent resource for trucking, transportation, logistics, owner-operator, and freight brokerage and 3PL firms. Depending on the payment terms of the customer, trucking and logistics companies may wait up to six months for payment. In an industry that never stops, CFF provides AR financing to cover operational costs and provides same-day funding and fuel advances. Many transportation companies utilize AR financing through CFF to obtain the capital they need in order to keep operating.
MANUFACTURERS
Manufacturers utilize CFF AR Financing to purchase raw materials and equipment, grow and obtain new business, cover payroll, and establish vendor credit. AR financing for manufacturers allows for business to operate without cash constraints.
TELECOMMUNICATIONS
CFF provides financing for communications companies including cable providers, satellite dish installers, and contractors to make upfront equipment purchases.
OIL & GAS
For oil and gas companies, CFF provides AR financing as the working capital needed to counterbalance slow paying customers. By using AR financing, oil and gas companies are able to bid and accept large contracts without worrying about the cash flow needed to provide the services.
HEALTHCARE
Medical providers utilize AR financing through CFF to bill vendors, insurance companies, Medicaid, and Medicare. Similarly, medical providers are able to utilize AR financing to purchase medical equipment and other products prior to receiving payment from patients.
GOVERNMENT
For businesses with government contracts, waiting to receive payment is not only frustrating but also places stress on the cash flow of the business. With a line of AR financing through CFF, contractors will have the necessary working capital to bid on and accept large contracts.
SERVICE PROVIDERS
For any business, waiting to receive payment from slow-paying clients hurts cash flow. Through a line of AR financing, CFF provides instant financing for service providers such as accounting, consulting, engineering, and IT firms. This allows for business to continue without cash flow constraints, payroll to be covered, and other capital-related issues to be eliminated.