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Why Would a Business Use Accounts Receivable Funding?

Posted by in Bank Program

In working with banks and providing an Accounts Receivable Funding Program through RMP Capital’s Community Bank Program, the question that is asked or implied most often is: “Why would a business use Accounts Receivable Funding?”

Accounts Receivable Funding is primarily for companies who cannot qualify for the amount of money they would like to borrow with a traditional working capital line of credit. This is because they do not have enough collateral to be approved for the line amount requested, they are a start-up, or they have credit issues – concentration, nature of business, too much exposure, etc.

But the key to whether or not a company is a fit for our program is what they do with the money.  For instance, a company doing $2.4MM in sales with a 50-day average turn on receivables will likely have approximately $330K in A/R at any given point in time.  We advance at a typical rate of 80%, meaning 20% of the receivables are a hold-back or in “reserve.”  So in this example, I could ask a business owner:  “If I could put approximately $240K on your desk tomorrow…What would you do with it?”  If he says, “I would buy a new company car, make some repairs to the building, take a vacation, and put the rest in the bank”…he is not a candidate for our program.  But, if he says, “I would pay off my existing line of credit to get out of debt, purchase two more vehicles to put two more sales people on the street, pay down my payables and take advantage of existing trade discounts, increase my inventory and offer new products to grow my business to its full potential, etc.”…he would be an excellent candidate for Accounts Receivable Funding.  The reason this company is a good candidate is that, by taking advantage of the aforementioned opportunities with improved cash flow, it will more than offset the higher cost fees with increased profits as result of achieving a higher growth level.  Also, the company is no longer making monthly debt payments and has the ability to reduce cost of goods sold (COGS) by taking advantage of early pay trade discounts or bulk purchases.  And, the business owner no longer has to worry about how to “rest the line” for 30 days, which is a typical requirement by most banks offering a line of credit.

Occasionally, we find a business owner that likes to use our program for peace of mind, no longer having to worry about cash flow.  Now, collection calls can be done as a good business practice rather than panicking for payroll or other obligations. The business owner no longer needs to gauge his day by what the mail brings.  Some business owners, regardless of where they are or what they are doing, want to know what checks came in so he or she can plan on who gets paid that day.  Accounts Receivable Funding eliminates this stress on a business owner.

RMP Capital Corp., headquartered on Long Island, NY, provides a hybrid, turnkey Accounts Receivable Funding Program for banks to offer their customers and prospects at no risk or cost! Accounts Receivable Funding is an alternative to traditional bank financing, specifically to increase cash flow and fund growth.  Give us a call to see how RMP’s Community Bank Program can work for your bank.

Chuck Stover, Manager of Bank Relations


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