Accounts Receivable Credit Lines

Some factors, especially banks, offer credit lines as part of their accounts receivable financing package. Generally, the credit lines have an overall minimum and maximum, and this is set according to the size of business the factor wants to attract. Larger factors may have an upper limit of $10 million, or more, and local banks that are appealing to smaller businesses may have limits more like $3 million.

Eligible Accounts Receivable

Not all accounts receivable that you, the business owner, want to sell may be acceptable to the factor. Your customers must have a good credit history so the factor has assurances that the customer will also pay the current invoice. Cash advances are made for anywhere from 60-90 percent of the face value of qualified invoices, and, with some factoring companies, up to 50 percent of the eligible inventory.

The total amount of the purchased invoices sets the credit line from which you may draw cash as needed for business purposes. A part of this arrangement with many companies is that you pay only for the funds actually used. If you have a credit limit of $100,000, but only use $30,000, then this sum is used to determine your costs.

One of the many advantages of having a factoring credit line is it does not show up on your books as an ongoing liability. Because factoring is not a loan, and, therefore, is not a debt, it does not affect balance sheets and other financial statements. Eligible accounts receivable are debts owed to you by your customers, and they are the main ingredient in establishing your credit line with a factor.