Receivables or future incoming funds are usually managed depending on the cash flows of the company and the funding cycles. The management of the company will look at the working capital of the company and most importantly the time of receipt in relation to the receivables. In the event that the receivable is long dated and cash flows are poor then a company may seek receivables finance.

The way that receivables finance usually works is that there will be credit terms provided to the end buyer.

An example of this could be an invoice that is sent out and is payable in 30, 60 or 90 days. On the basis of this; an invoice or receivables finance option may be used. The funder will typically pay between 70-95% of the invoice face value to the customer and the receivable or invoice will be assigned to the funder. The discounting of the receivable or invoice may be done on a confidential or non-confidential basis. The difference between confidential or non-confidential funding is that the buyer will know or not know that a funder is being used. The difference is usually that a dedicated account will be used or set up for the receivable to be paid into and may also be in the borrower’s name, but will be charged in favour of the funder.

Confidential receivables finance may be used if the borrower does not want the customer to know that they are using a lender. The reason for this may be due to them not wanting to be perceived as being a financially weaker company; as they are disclosing that they have a finance facility. It may also be because the end purchaser is not able to agree to an assignment over the receivable due to policy reasons.

In the event that an invoice is payable in 30 days and a funder provides finance against 80% of the invoice to the borrower; then the end buyer will acknowledge an assignment over that invoice or receivable. This is so that the recipient of the funds when paid, will be the funder.

We speak about a receivables account as being the account that the funds from the end buyer are paid into, when a receivable or invoice is financed. As mentioned above, the funders name may be disclosed or undisclosed.

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