What Options Does a Business Have for Financing Receivables?

by Patrick Higgins

If you’re a business owner who wants to grow your business, capitalize on supplier discounts, cover unexpected business expenses, or simply bridge the gap between the time when you bill for your product or service and when you get paid, then a line of credit may prove to be the perfect tool.

Accounts receivable financing is for businesses that need working capital and have outstanding invoices from their clients. With a line of credit, banks will lend on a percentage of these receivables balances for invoices outstanding less than 90 days.

Lines of credit are usually variable rate loans, oftentimes priced based on WSJ Prime plus a margin, that allow flexibility to draw funds as needed and repayment as customer payments are received. Interest payments are due monthly on the outstanding balance on the line of credit as well.

To qualify for a traditional bank line of credit, you must have been in business for at least two years and demonstrate the financial ability to repay outstanding debt obligations. Additionally, the company must have the ability to pledge these accounts receivables to the bank and established business credit.

Answers provided by Patrick Higgins, Vice President, Commercial Lending at Simmons Bank. He can be reached at 314-569-7253 or pat.higgins@simmonsbank.com. The views and opinions expressed in this article are those of Patrick Higgins and are not endorsed by, and do not necessarily reflect the views of, Simmons Bank. Simmons Bank does not provide tax, accounting, or legal advice.