Accounts Receivable Financing

Services

With a traditional Factor, I was not a client - I was under the microscope at every turn. With Tricom, it's a partnership.
- Jim McGovern, President & CEO, Secureone

 

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. A Recourse relationship means that the staffing company accepts the financial risk of the receivables. A Non-Recourse relationship means that the Factor accepts 100% of the accounts receivables' financing risk. 
 
Benefits of a Factor relationship include: 
  • A faster underwriting process
  • More flexibility than bank financing
  • Company or owner financials and personal guarantees are not necessarily required
  • Customers' credit is usually the determining factor in credit availability
  • Owners do not have financial risk of the receivables in a Non-Recourse relationship
  • No concentration limits
 
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: 
 
  • Credit limits imposed per customer (vs. your total receivables)
  • The Factor's name appears on your customer invoice, causing potential customer confusion
  • Weekly invoice verifications required prior to funding
  • The Factor may require customers to make checks payable directly to the Factor 
  • Most Factors are not staffing-specific and lack industry expertise
  • Payments go to a lock box, which may result in additional clearance delays and corresponding charges 
 
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. 
 

Accounts Receivable Financing or Specialty Asset Based Lending

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: 
  • More flexibility so staffing companies can more quickly and effectively take advantage of opportunities for growth
  • More detailed reporting so they can better understand their company's true financial picture and make better strategic decisions
  • Additional resources such as back office administrative support, payroll processing, workers' compensation expertise, tax guidance and assistance, financial statement preparation and more
 
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: 
  • A more thorough underwriting process
  • Personal guarantees, personal financial statement and credit reports required
  • Concentration limits from 25% to 75% 
  • Not all ABLs are staffing-specific
  • Payments go to a lock box, which may result in clearance delays and additional charges
  • Limited financial reporting required (if any) 
 
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.
 

 

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