The Benefits of Factoring With a Bank | AR Financing | Axos Bank

The Benefits of AR Financing With a Bank

managers meeting on cash flow issues

When companies need funds quickly and don’t want to wait for their customers to pay their invoices, AR financing is a popular choice. Also known as accounts receivable financing or invoice factoring, AR financing allows companies to sell their invoices to secure the funds they need. Companies have been financing their receivables for centuries. A notable advantage of this form of financing is that it is not limited by a company’s size or industry. However, it is only an option for companies that provide business-to-business services rather than services directly to consumers.

AR financing is commonly used by companies to:

  • Boost working capital
  • Improve cash flow
  • Cover expenses
  • Buy materials

Where do companies turn if they are interested in financing their receivables? The first choice of many companies is a bank.

Bank Program Benefits

In addition to providing the same flexibility as other types of financers, a bank can offer some unique benefits to a company when it comes to financing receivables. Let’s explore some of these benefits in more detail.

No Middleman Expense

Banks that offer AR financing are a direct source of funds. On the other hand, when an AR financing business is used, they act as a “middleman” between the company seeking the funds and the bank providing the funds. This can result in higher rates. When a company chooses to work directly with a bank, the middleman is eliminated. The funds offered by the bank are their own, and they can be provided at competitive rates — without the expense of a middleman.

Security, Stability, and Professionalism

Because companies work extremely hard to establish and maintain customer relationships, it is understandable that they would be cautious when introducing another party into the relationship. Many companies value the security, stability, and professionalism that come from working with a bank. After all, banks are by their very nature highly regulated, with both federal and state agency oversight. This intense scrutiny provides bank customers with an added level of protection from fraud, theft, and other deceptive practices. In contrast, AR financing businesses are primarily self-regulated and generally operate without the direct oversight of any government agency.

Multi-Level Banking Relationship

Banks prioritize building lasting relationships with their customers. They devise nurturing campaigns and cross-selling strategies with the goal of becoming a customer’s single source for every financial need. AR financing can be used to initiate a company’s relationship with a bank and may also be an avenue to a commercial loan in the future. Setting up a commercial checking or other type of deposit account can help create a multi-level relationship with the bank where services can be added as the company expands and builds its credit history.

Additional Services

managers meeting on cash flow issues

Quickly receiving the funds it needs from the bank is a company’s top priority, but there are a number of related services that come from the AR financing relationship.

Easy Invoice Management

Generally, after the setup of the AR account is completed, a company will have the flexibility to determine its own invoicing requirements and manage its receivables, payments, and fundings. In most cases, the company controls the number of customer invoices to be financed, whether one, several, or all of them. The company should also expect to have unlimited access to its AR account so it can be managed when it’s convenient for the company.

Customer Credit Checks

Because of its vested interest in the creditworthiness of the company’s customers, a bank will provide customer credit checks for approved limits. In many cases, credit reporting is built into the AR system so the company can submit and manage credit limits for their customers.

Accounting Integration

The AR software and web portal provided by the bank can often be used with the company’s existing accounting software. For example, most AR software will integrate with Quickbooks, allowing for direct uploads and reconciling of invoices, fees, and cash deposits.

Industry Expertise

A bank with a well-established AR financing program will have account professionals available who are experienced in the program. Because these professionals are familiar with the industries that use AR financing, they can draw on their knowledge to provide answers to complex questions. This readily available industry expertise can help a company manage issues as they come up.

Qualification and Set-Up

The AR financing provided by a bank should not be confused with a bank loan. Unlike other forms of bank lending, a company’s qualification for AR financing is primarily based on the credit strength of its customers, not its own. The bank uses the credit and financial history of the company’s customers to determine if they have positive payment records.

Although the qualification and set-up process can vary by lender, it generally begins with an initial discussion between a bank professional and a company representative. The cash needs of the company are determined and an initial quote with a breakdown of fees is provided by the bank professional. If the company decides to move forward, the bank professional will review the entire agreement with the company and answer any questions that come up during the discussion. Once the company accepts the terms of the agreement, the company will be given access to the bank’s AR software and portal during the set-up process. As the company submits invoices, the funds are generally delivered to the company by ACH direct deposit or wire transfer. In many cases, the processing of the invoices and funding can be done on the same day.

"For companies offering business-to-business services, AR financing with a bank is a quick way to access the cash they need."

For companies providing business-to-business services, AR financing is a tried-and-tested option to quickly access cash. Using a bank to provide this service can save a company money by eliminating the expense of a middleman and provide the additional security, stability, and professionalism that often come from working with a federally regulated institution. And establishing a multi-level relationship with a bank can allow for additional services in the future, including the possibility of commercial loans.

For more information on the benefits of the Axos Bank AR Financing Program, please call 1-877-247-7990 to speak with an experienced professional today.

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