Sales ledger financing, also known as a ledgered line of credit, provides companies with a revolving line secured by their Accounts Receivable (A/R). Lines are available to small and middle-market companies that invoice at least $500,000/month.
Ledgered lines are a great alternative for companies that need to improve their liquidity. They are easy to use, have simpler compliance requirements than alternatives, and can be deployed quickly.
How does sales ledger financing work?
Ledgered lines work as a revolving financing line secured by your company’s invoices. Companies can draw funds up to their credit limit, typically 85% of their eligible A/R. The line is paid back and settled as your customers pay their invoices on their usual terms.
Drawing funds from the line is simple. The company submits the list of invoices they want to finance along with backup documentation to the finance company. Once processed by the financing company, the funds are deposited into the company’s bank account.
Read “What is a Ledgered Line of Credit? How does it work?” to learn more.
What determines the line’s limit?
Ledgered lines allow you to draw between 85% – 90% of your eligible receivables up to a limit. The limit and the percentage of your A/R available for draws are determined by your industry, A/R quality, revenues, and needs.
The facility can be used by companies that are growing quickly. The financing limit is dynamic and can increase as your business grows.
Pricing
Ledgered lines are usually priced using a public reference rate and adding a fixed percentage. Most lines use Prime, Libor, or a similar rate.
For example, a line could be priced as “Prime + X%” or “Libor + X%.” The “+X%” portion of the cost is determined by the size of the line and the client’s risk profile.
Simpler compliance
Ledgered lines of credit have simpler compliance requirements than alternatives. Consequently, staying in compliance and managing the line is comparatively easier. This feature is important for companies that have seasonal revenues or are growing quickly.
Qualification requirements
The most important requirement to qualify for sales ledger financing is to work with quality customers. Ledgered lines rely on the credit strength and quality of your invoices as their primary collateral. Additionally, clients must also have:
- Minimum sales of $500,000/month
- Creditworthy invoices
- 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.
Benefits of a ledgered line
Sales ledger financing lines offer several advantages over competing options. They are a excellent option for small and midsize companies that have outgrown their factoring line but are not ready for a bank line of credit.
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 a substantial underwriting effort. Line changes 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 an asset-based loan.
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.“
Industries
We can work with companies in most industries. Popular industries include:
- Transportation
- Staffing
- Manufacturing
- Business services
- I.T.
- Government contractors
- Consulting
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.