Establishing an Accounts Receivables Line of Credit is similar to both factoring and asset based debt. In this case the assets are the accounts themselves. The lender will typicallly loan the company some capital based on a formula such as 80% of eligible accounts. The eligible accounts can be anything that the capital provider is comfortable with, such as any account which is aged less than 60 days. The lender will typically receive the payments and then release funds in accordance to an agreement. As accounts are paid by the customers, the amount outstanding on the line declines and the Company may then borrow again up to the limit of the line.
Unlike the factor, the lender does not assume responsibility for the collection of the account nor the risk of non-collection which remains with the Company. Bad Debt or debt which ages past the period of eligibility is no longer calculated in the borrowing base and the capital available in the line decreases.
In seeking an accounts receivable lline a Company should have
> A track record in the industry with a good reputation in its products or services and few returns or disputes
> Creditworthy clients.
We work directly with companies and also with their intermediaries or advisors.
