Factoring accounts receivable is a financial strategy that can help businesses improve their cash flow and manage their working capital efficiently both domestically and abroad.

In this blog post, we will explore the two types of factoring and the benefits it offers to businesses.

Types of Factoring

● With recourse: if a customer fails to pay, the factor sells the invoice back, and the business takes credit risk. However, most customers that factor with recourse purchase credit insurance to mitigate the credit risk. In contrast,

● Without recourse: the factor takes credit risk.

Benefits of Factoring

● Immediate cash flow: Factoring involves selling accounts receivable to a third party (a factor) at a discount, in exchange for quick cash. This can help businesses access the funds they need quickly, without having to wait for customers to pay their invoices.

● Improved liquidity: Factoring can improve a company’s liquidity, allowing them to pay bills, make investments, and grow their business.

● Reduced credit risk: By selling accounts receivable, businesses can transfer the credit risk associated with those invoices to the factor. This can help protect against non-payment and bad debt losses that can impact your credit.

● Outsourced credit and collections: Factoring companies often handle credit checks, collections, and other administrative tasks related to accounts receivable, allowing businesses to focus on other core aspects of their operations and growth.

International factoring

International factoring offers additional benefits for businesses, including:

● Mitigated Foreign Exchange Risk: International factoring can help businesses mitigate the risk of currency fluctuations when selling goods or services to customers in foreign countries.

● Improved Cash Flow: International factoring provides businesses with immediate cash for their export sales, which can help improve their cash flow and working capital position.

● Reduced Credit Risk: International factoring can help protect businesses against non-payment and bad debt losses when exporting to foreign markets.

● Access to Financing: International factoring can also provide businesses with access to financing, such as pre-export and post-export financing, enabling them to expand their international operations.

Overall, domestic, and international factoring can be valuable financial tools for businesses looking to improve their cash flow, manage risk, and grow their operations, both domestically and abroad.

Other key points

● There is an Advance rate of 80% – 90% on eligible receivables.

● Most international receivables will need to be insured with a credit insurance policy.

● This is not considered a loan and will not appear on your balance sheet.

● Single debtor factoring and forfeiting are also available if your business needs them.

Factoring can be a valuable financial tool for businesses looking to improve their cash flow, manage risk, and grow their operations, both domestically and abroad. To explore factoring options that are personalized to your business, contact us at AmRock Financial.

Purchase order financing, inventory & structured trade finance are solutions to boost your business cash flow.

By having the right financing in place, businesses can avoid cash-flow challenges, take advantage of their growth potential & increase profitability. 

What is Purchase Order (PO) Financing?

Purchase Order Financing, also known as PO Financing, is a financial arrangement where a third-party lender provides funds to a company to fulfill a specific purchase order. It is primarily used by businesses that face cash flow constraints and lack the necessary funds to fulfill large orders especially as they are scaling as a business.

The lender advances the funds needed to cover the cost of purchasing the goods specified in the purchase order. Once the goods are delivered and the customer pays the invoice, the lender is repaid along with any agreed-upon fees and/or interest.

For example, at AmRock Financial we have a customer who manufactures electronic devices.  The company received a large purchase order from a retailer to supply a large quantity of smartphones. However, the manufacturer lacked the necessary funds to purchase the required components and fulfill the order.

The company reached out to us to explore potential PO Financing options.  We quickly assessed the viability of the purchase order and agreed to find a lender that would fund the manufacture of the smartphones. We brokered a deal with a PO financing lender who agreed to pay the suppliers directly for the raw materials, enabling the company to fulfill the order. Once the smartphones were delivered to the retailer and the invoice was paid, the retailer’s payment was directed to the PO lender directly. The lender deducted their fees and interest and transferred the remaining funds to the manufacturer.

How do Accounts Payable work?

Accounts Payables, often referred to as AP, represents the money a company owes to its suppliers or vendors for goods or services received on credit. It is a liability on the company’s balance sheet, reflecting the outstanding payments that need to be made to the suppliers within a specified timeframe.

For example, AmRock Financial worked with an importer of toys who received a shipment of toys from their regular Vendor. The Vendor required payment when the containers arrived at the US Port.   The Importer was short on liquidity and was unable to pay the Vendor. We found an AP Lender who paid the Vendor. The Lender then extended the payment terms to the Importer for 90 days. AP Financing allowed the Importer to pay and buy the goods they needed and deliver them to his retail customer. 

AP or PO financing is a financial tool that business owners can be used to increase sales or fulfill existing orders.

Contact us at AmRock Financial and we will gladly help you with the right financial solution for your business.