What is Accounts Receivable Financing?
Not all lenders are created equal
We commonly find that there is confusion between Factoring and Accounts Receivable Financing (AR Financing), which is also called Asset Based Lending since your Accounts Receivables are the assets you use as collateral for your financing. Accounts Receivable Financing or Asset Based Lending is what TRICOM offers. We’ve broken down the differences so you can better understand your financing options:
Factoring
There are two different types of Factoring staffing relationships: Recourse and Non-Recourse. In both types of relationships, the Factor takes ownership of the receivables. In a non-recourse relationship, the Factor does not require the staffing company to buy the receivables back within a set term, such as 90 days.
With that being said, the trade-off for not taking financial risk or having your company or personal financials taken into account means that Factoring is usually the most expensive funding option. In addition to the cost, you may also find these limitations when working with a Factor:
Some Factors, especially in Non-Recourse relationships, will also take over collections with your customers. This means you don’t have a say regarding the tactics and service your customers receive from the Factor, potentially exposing your staffing company to service issues and headaches beyond your control.
Asset Based Lenders (ABLs) such as TRICOM are oftentimes lumped together with Factors in the minds of staffing company owners. However, they do offer a different accounts receivable funding model and aren’t limited to staffing companies with less than stellar credit or financials. ABLs are more along the lines of a hybrid solution to a Bank Line of Credit.
One of the primary differences between a Specialty Asset-Based Lender who offer AR Financing and a Factor is that an ABL is industry-specific. So an ABL who offers AR Financing for staffing and have an in-depth understanding of the industry and the specific challenges a staffing company owner may have. Typically, ABLs offer:
As more of a hybrid funding option, some of the Specialty ABL limitations are somewhat of a mix of the cons from both the Bank Line of Credit and the Factors, such as:
In terms of the cost of an ABL, each relationship is different. A Payroll Funding-Only relationship that involves only accounts receivable funding will be less expensive strictly on a cost-basis than a relationship that involves back or front office administrative support. That being said, it’s important to look at the relationship carefully to understand your true cost of funding, including taking into consideration additional resources and services, added fees, etc.
To learn more about your different funding options, visit our Checklist on our Funding Evaluation Tools page.
To learn more about TRICOM’s specific Account Receivable Financing / Asset Based Lending Services, click here.
HEAR WHAT OUR CLIENTS HAVE TO SAY
We’ve had experience with two other companies that I would say are factor-type companies. The most recent one we used, they were extremely selective in the companies they would fund. We only had three or four companies that they were interested in funding. TRICOM has been very open and willing to fund companies that our previous company would not even touch.
Sonny McGee
President & CEO, Integra Business Alternatives
We’ve had experience with two other companies that I would say are factor-type companies. The most recent one we used, they were extremely selective in the companies they would fund. We only had three or four companies that they were interested in funding. TRICOM has been very open and willing to fund companies that our previous company would not even touch.
Sonny McGee
President & CEO, Integra Business Alternatives