Sales ledger financing improves your cash flow by enabling you to finance your accounts receivable. The line allows you to draw against the amount owed to you, essentially accelerating your revenues. It is an alternative to conventional factoring and is offered to companies that have outgrown the need for factoring.
How does sales ledger financing work?
Lines are designed to behave like a conventional line of credit that is tied to your sales. The line works 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 borrowing base. Fund requests are processed quickly and are usually deposited to your bank account within one business day.
What is a borrowing base?
The borrowing base is the funds that your company can withdraw at any time. It’s calculated on a percentage of your eligible receivables. The eligibility of receivables is based on 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 individual characteristics of the client.
The most important requirement to qualify for sales ledger financing is to have strong sales and quality customers. The solution relies on the strength of your sales. Additionally, clients must also have:
- Minimum sales of $500,000/month
- Solid receivables and collections management
- Reliable internal controls
- Good operations track record
- No major tax or financial problems
If your company does not meet these requirements, consider invoice factoring. Factoring offers similar benefits but is 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 cash flow.
1. Easy to use
Lines are easy to use and don’t have the complexities associated with factoring lines or other solutions.
2. Grows with sales
The lines are very flexible and can adapt to your sales growth. Unlike bank financing, line increases do not require substantial underwriting and are processed quickly. This benefit ensures you have funding available when you require it.
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 a number of strict and redundant controls that are built into conventional factoring lines. Having fewer controls makes the lines more user-friendly for both your company and your clients. Note that information on the ledger is spot-checked every so often 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 to healthcare companies that bill third-party medical insurance.
Sales ledger financing quote
Are you looking for sales ledger financing? Fill out this form for an instant quote or call (877) 300 3258.