Before signing up for Accounts Receivable Financing Agreement

Author Team Coral Capital

Did you just sign an Accounts Receivable Financing Agreement

Are you considering Accounts Receivable Financing?


Did you just sign up for AR Financing?

Regardless of your situation, you should consider some of the following issues during your diligence.

Receivable financing gets businesses on track, but getting into a financing arrangement that is so critical to your business calls for patient consideration of the fine print.

A typical factoring contract may have a number of key elements besides the headline rate that may leave clients confused.

Read on to learn how to work with factoring companies and what to look for so that you get a fair deal.

Comparing Fees and Charges

Transparency is the key when determining pricing.

Different accounts receivable financing agreement set up their fees differently. Some may have a single discount rate based on how long an invoice is outstanding, others may have a combination of a one-time factoring fee plus an interest rate on the funds that are utilized.

It is not a trivial matter to compute the annualized yield equivalent between the two structures so you will have to apply these rate structures against the historical performance of your invoices and expected utilization of funds to come up with a credible comparison.

Concentration Limits

Many young or fast-growing companies often have concentrated exposures to a handful of their large customers.

If your factoring agreement limits advance on any one debtor to a small percentage, then it will not serve your needs. We are generally open to accounts receivable financing with high, and sometimes even 100% concentration.


Another thing to consider when shopping for factoring firms is the amount of flexibility it offers to its clients.

A smart business owner would ask some or all the following questions to potential factoring companies-

  • Do I have to sign a personal guarantee, will I be held responsible for any unpaid invoices?
  • Am I required to sell all my invoices?
  • Do I have to factor invoices for all my customers?

It’s important for business owners to know the level of flexibility their intended factoring company offers. So, they aren’t surprised when these questions arise later in the factoring relationship.

Are there any other issues you would like addressed, while you go about evaluating factoring companies?

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