Receivables financing takes place when a business receives funding based on purchases that have been made but haven’t been paid for by the clients (accounts receivable). This practice is also known as invoice factoring, invoice discounting, or invoice financing.
The way receivables financing works is fairly simple. Here is an example:
A business sells kitchen equipment. They receive a big purchase order by a national restaurant chain (the client). The client is interested in buying equipment worth $400,000. However, even though the restaurant chain needs the equipment right now, it can only make the full payment in the next 4 months. The supplier accepts the terms, delivers the kitchen equipment, and issues an invoice for $400,000 due in 4 months.
Understandably, if this type of purchase is repeated by several other clients, the supplier might run into a cash flow shortage while waiting for payments to be made, jeopardising the company’s ability to function.
The supplier, who wants to avoid cash flow issues, decides to sell the invoice to an invoice factoring company. After checking, among other things, the creditworthiness of the debtor and the length of the commercial relationship, both parties agree terms. The invoice factoring company will advance them $316,000 on the same day the supplier sells the invoice. Then, when the client pays off the full amount due, the invoice factoring company will release the remaining $84,000 minus a factoring free.
By doing this, the supplier gets access to cash immediately after the purchase, the client gets the equipment it needs and gets to pay later, and the factoring company profits from the factoring fees. It’s a win-win situation.
Receivables financing with Velotrade
At Velotrade, we specialize in receivables financing and invoice factoring. We are an alternative to bank financing.
Some traditional financing institutions like banks and some insurance companies, offer receivables financing services. However, they tend to make the entire process lengthy and overcomplicated by requiring unnecessary documentation as well as high value assets in order to provide funding. On top of that, most banks lock their clients into long-term contracts, obligating them to sell all their invoices exclusively to the banks.
All these issues are off the table when partnering with Velotrade. Velotrade offers all of the advantages and removes the disadvantages when compared to traditional receivables financing companies. We offer clients full flexibility, allowing them to fund only the invoices they want with transparent and straightforward fees and terms.
Here’s some of the benefits of receivables financing
Get started with receivables financing for your business today
If you are a registered company that has been in business for 12 months generating turnover of over $1,000,000 (USD) and your buyer has a stable credit history and has been in business for at least 3 years generating turnover of over $20,000,000 (USD), then you can apply for invoice factoring with Velotrade today!
All online processes through the Velotrade platform and it works as follows:
- Register your company (first time only)
- Create a new auction for the invoice you want to discount
- Velotrade verifies the details
- Investors buy your invoice
- Funding is transferred to your bank account after the auction is complete