Sales ledger financing allows you to finance your accounts receivable. It improves your cash flow and provides funds to operate the company and pursue new investments.
The lines are available to companies that invoice a minimum of $200,000 and have outgrown their factoring lines.
How does sales ledger financing work?
Lines are designed to behave much like a conventional line of credit tied to your sales. Sales ledger financing lines work off a borrowing base calculated as a percentage of your eligible receivables. The borrowing base is dynamic and adapts as new invoices are generated and old invoices are paid off.
Your company can withdraw funds as needed, up to its maximum credit. Fund requests are processed quickly and are usually deposited into your bank account within one business day.
What is a borrowing base?
The borrowing base is the amount of funds your company can withdraw. It’s calculated on a percentage of your eligible receivables. The eligibility of receivables is determined by the creditworthiness of the company paying the invoice and the invoice details.
The advance percentage on your eligible receivables can range from 80% to 95%. It’s determined by your industry, invoicing practices, and dilutions. Dilutions include discounts, returns, credit notes, etc.
Lines are usually priced using a public bank rate plus a percentage. For example, a line could be priced as “Prime + X%” or “Libor + X%.” The “+X%” portion of the line is determined by the size of the line and the client’s risk profile.
The most important requirement to qualify for sales ledger financing is to have sales to quality customers. Sales ledger financing relies on the credit strength of your invoices. Additionally, clients must also have:
- Minimum sales of $200,000/month
- Solid receivables and collections management
- Reliable internal controls
- Good operations track record
- No liens against accounts receivable
- No major tax or financial problems
If your company does not meet these requirements, consider invoice factoring. Factoring lines offer similar benefits but are easier to obtain. Factoring is available to companies of all sizes. For more information, read “Sales Ledger Financing vs. Factoring.”
Benefits of a ledgered line
Sales ledger financing lines offer several advantages over competing solutions. They are an excellent option for small and midsize companies that need to improve their working capital.
1. Easy to use
Lines are easy to use. They don’t have the complexities associated with factoring lines or other solutions.
2. Grows with sales
The lines are flexible and can adapt to your sales growth. Unlike bank financing, line increases do not require substantial underwriting. They are processed quickly so you can have funding available when needed.
3. Competitive rates
The lines have competitive rates that are applied on monthly average use. Rates fall somewhere between the rates for a comparably sized factoring line and a line of credit.
4. Reduces redundant controls
Ledgered lines don’t have the number of strict and redundant controls built into conventional factoring lines. Having fewer controls makes the lines more user-friendly for your company and clients. Note that information on the ledger is spot-checked occasionally to ensure accuracy.
To learn more, read “Advantages of Sales Ledger Financing.”
We can work with companies in most industries. Popular industries include:
- Business services
- Government contractors
Unfortunately, we cannot offer these lines to construction companies or healthcare companies that bill third-party medical insurance. These companies should consider construction and medical factoring, respectively.
Sales ledger financing quote
Are you looking for sales ledger financing? Fill out this form for an instant quote or call us toll-free at (877) 300 3258.