Receivables financing, sometimes called factoring or A/R, is a type of funding in which a business sells its invoices to a third party at a discount in exchange for cash. The business’ payors send payment directly to the third party, in this case, P2Binvestor.
With purchase order financing (P.O. financing), capital is extended from a third party directly to a supplier, with payment later upon delivery from the end user. Funds go to the supplier to fill the order rather than to the business to use for other purposes.
Inventory financing functions similarly to A/R financing except finished goods are used as collateral instead of invoices in exchange for working capital.
P2Binvestor focuses primarily on receivables financing, although we can consider finished inventory in some cases. We also work with a community of partners to offer additional financing options (such as P.O. financing).
- Access to capital for growth: We’re ready when you are. We combine crowdfunding and our proprietary technology platform to get you the cash when you need it. Get up to $10M in financing in as few as 15 business days. We can also accommodate line increases quickly for a 1.5% fee.
- Transparency: Unlike many of the others, we’re upfront with our fee structure. There is no misleading fine print or other “trickery” that works to push effective rates above what is advertised. We charge a daily, non-compounding rate only on what you use.
- Rate decreases over time: In general, discount rates reflect risk and risk can change. As your business gets more profitable, gets bigger orders and expands into larger markets we will review your discount rate and consider reductions as appropriate.
- Financial partnership: Your success is our success. Between our Operations Team with their experience across a broad range of industries, and our proprietary online dashboard (Lending Hub), we provide our clients with the real-time data, financial support, and insight that helps get them to the next level.
It’s true bank term lines of credit (LOCs) can offer lower rates, but federal regulation, internal controls and a traditionally risk-averse credit posture can make them difficult to get. Plus, they can restrict how you spend your money, and can add fees beyond the interest rate, such as annual fees and line fees (for LOCs). All the red tape means they’re often slow to approve a loan or increase an LOC—it can take weeks or even months. They simply can’t move as fast as we can. Want to learn more about term loans vs. lines of credit? Take a look at our ebook.
- Make your cash flow smoother and more predictable.
- More easily fill new and future orders.
- Avoid being limited by slow-paying customers.
- Use the capital as you need to grow your business, free from the use-of-funds restrictions imposed by many banks and other lenders.
Here are some real-life examples of how a P2Bi line of credit can help:
Company X—a granola company—must pay upfront for materials, production, and shipment to stock shelves at Whole Foods. While Company X waits to get paid, a big order comes in from Safeway. Without payment from the first order, Company X doesn’t have the funds to cover the upfront costs of the new order and will risk losing the opportunity to work with Safeway and grow its business.
Company Y—a staffing company—is responsible for paying its employees on behalf of its clients ahead of receiving payment itself. Company Y typically floats payroll anywhere from five to 30 days and needs operating cash to keep the business running while it waits for payment.
1. Qualification: This starts with you. Just contact us online via our Get Started form. You can also call us at 720-361-1500. We will work with you to better understand your business needs and determine if you are eligible for our LOC products.
2. Application: If you qualify, your next step will be to provide the following documentation (listed below) so that we can explore what lending options work best for you. P2Bi will then issue you a Term Sheet.
- Balance sheet, as of the end of the last closed month.
- Balance sheet, as of the end of 2016.
- Income statement (P&L), current YTD (through end of the last closed month).
- Income statement (P&L), full year 2015.
- Income statement (P&L), full year 2016.
- Accounts receivable aging report, current YTD (through the end of the last closed month).
- Accounts payable aging report, current YTD (through the end of the last closed month).
3. Term Sheet. The term sheet is non-binding and outlines the terms of the facility, including effective rate and preliminary line amount based on current A/R balance, revenues, strength of payors and a few other factors. By signing the term sheet, you authorize P2Bi to begin an underwriting review in anticipation of completing a final comprehensive borrowing agreement.
4. Underwriting. The credit underwriting process takes about five to ten days and once completed successfully, means you’ve made it!
5. Onboarding. The final, but important step. We provide a one-hour tutorial of the Lending Hub and an introduction to the Client Success Team. These are the folks that will be working with you to manage incoming payments and your outgoing capital. They want to see you succeed as much as you do!
- Your company must have a minimum of $250K outstanding between A/R and inventory.
- Your company must be US-based with US or Canada-based payors.
- Your company can NOT be a sole proprietorship.
- Your company has approximately $1M in revenue and is growing.
- Your customers are all or mostly Business to Business.
With our proprietary technology platform, our investors can advance and withdraw funds on a day-to-day basis.This gives P2Bi significant advantages in lending flexibility and speed over banks and other capital providers. For qualified businesses, we also have our Bank Partnership Program in which we partner with a traditional commercial lender and share the risk and our technology so they can provide a lower rate that they otherwise wouldn’t be able to offer.
Best of all, our sourcing allows you to tap working capital and scale quickly. For example:
Company Z has a line set up for $500K to fund the production of its nutrition bars. Recently the company learned that Whole Foods wants to increase its shelf space, which will require boosting production capacity quickly.
With an additional Whole Foods invoice for $250K, Company Z requests a increase in line capital. Our Operations Team approves the increase, which is then reviewed and approved by our Credit Committee, and ultimately results in the expanded line becoming available quickly after Company Z’s request.
Behind the scenes, we use a third-party lockbox account to collect paid invoices. Our Operations Team processes and reports on invoices as they come in, and can update a company’s available line balance within a business day or two of invoice submission.
In most cases, you can draw up to 70-80% of the full value of your A/R and between 25-50% of the value of your inventory. This percentage depends on criteria such as the strength of your paying customers and whether your business is profitable. Specific terms will be reflected in your contract but can also be reviewed to make changes if and when appropriate.
- Medical insurance receivables due to insurance billing (medical device or service provider companies are okay, however).
- Perishable, unpackaged food such as fresh fruit.
Receivables from within the trucking industry (although logistics companies are okay).
- Construction where subcontractors and/or retainage billing is used.
- Consumer-facing receivables.
On January 1, Company X borrows $100,000 of a $250,000 LOC at a daily discount rate of .0493%. Discount for January 1 is calculated as: $100,000 (principal borrowed) x .000493 x 1 day = $49.30.
On Day 1, Company X borrows $100,000 of a $250,000 LOC at a daily discount rate of .0493%. Discount for Day 1 is calculated as: $100,000 (principal borrowed) x .000493 x 1 day = $49.30.
At the end of Day 1, $100,000 (principal) + $49.30 (discount) = $100,049.30 outstanding.
With $100,000 outstanding, if eligible collateral becomes available to the credit limit of $250,000, an additional $150,000 can be accessed.
On Day 2, $35,000 in paid invoices comes in. These funds are first applied to the $49.30 in outstanding discount. The remaining $34,950.70 (or $35,000 – $49.30) is applied to outstanding principal of $100,000. This leaves $65,049.30 (or $100,000 – $34,950.70) in outstanding principal.
Discount on Day 2 is calculated as $65,049.30 (principal) x .000493 (daily discount) x 1 day = $32.07.
At the end of Day 2, $65,049.30 (principal) + $32.07 (discount) = $65,081.37 outstanding.
As mentioned previously, additional line capacity opens up as eligible collateral becomes available.
We combine deep understanding of early stage growth management issues, a syndicated risk model, and a proprietary technology platform to provide scalable capital in real time that uniquely supports growing companies. And, we continuously graduate you to better opportunities with better interest rates when your company is ready, so you never have to shop around or reapply for a loan. Once you’re “in” with us, you’re in!
No one else offers a product made by entrepreneurs, for entrepreneurs that not only provides business owners with the working capital they need, but it also provides them with the financial insights and partnership they need to help their companies grow.
With and LOC from P2Bi you can spend the capital on whatever you need to keep your business growing—payroll, inventory, bulk ordering, etc. We don’t restrict how you can use your funds like other lenders often do.
Banks: Banks can offer lower rates, but they can be difficult to secure due to federal regulation, internal controls, restrictive covenants and a traditionally risk-averse credit posture – especially when it comes to working with new companies. Banks tend to be generalists and may not have particularly deep insight into the needs of some types of growing companies. When possible, however, we partner with banks which enables them to use our technology to fund the growing businesses they want to fund but usually can’t because of restrictions.
Examples of banks include JP Morgan Chase, Bank of America and Citibank.
Alternative lenders: Alternative lenders provide capital to businesses who can’t or chose not to, get a loan from a bank. They include traditional accounts receivable factoring firms and firms that use other sources of collateral for security (real estate, equipment, etc.). When compared to P2Bi, many alternative capital providers offer higher fees, less transparency in pricing and unclear terms. Covenants can be limiting and client support, in terms of financial insight and online data and management, is often lacking. They also don’t have our entrepreneurial focus, which uniquely positions us in the lending market.
Examples of alternative lenders include BlueVine, Charter Capital and OnDeck.