ACCOUNTS RECEIVABLE FINANCING
Strong sales don’t always produce immediately available cash. Businesses often pay suppliers, employees, and operating expenses before customers settle their invoices, and extended payment terms widen that gap.
A Ledgered Line of Credit from Great Elm Commercial Finance is a revolving borrowing arrangement supported by eligible accounts receivable.
FINANCING OVERVIEW
Borrowing availability under a Ledgered Line of Credit is calculated from the eligible receivables supporting the facility, then limited by the facility’s terms: the advance rate, applicable reserves, outstanding borrowings, and the credit limit.
Invoices that do not meet eligibility requirements do not support borrowing, so the quality of the receivables matters as much as their size.
ADVANCE RATE
Of eligible accounts receivable
FINANCING STRUCTURE
PRIMARY COLLATERAL
INTEREST BASIS
Interest is charged on drawn balances, not on unused availability
KEY BENEFITS
The benefits follow from how availability is tied to invoices: it can be drawn, repaid, and drawn again as the business operates.
Availability is not increased automatically whenever revenue grows. It depends on eligible receivables and the facility’s terms.
Borrowing against eligible invoices gives a business access to capital while those invoices are still outstanding, helping to cover payroll, supplier payments, and inventory purchases without waiting on every customer.
Because the facility revolves, funds can be drawn and repaid within the credit agreement. As receivables and balances change, availability is recalculated within the facility limit and borrowing-base requirements.
Customer payment timing and fluctuating sales volumes create uneven cash flow. Availability that moves with eligible invoice balances can respond to those changes more closely than a fixed loan amount.
Larger orders mean more capital tied up in outstanding invoices. Where those invoices are eligible, they can add to borrowing availability, within the facility’s limit, reserves, and borrowing-base requirements.
HOW IT WORKS
Four things interact to determine what a business can borrow at any moment: eligible invoices, customer payments, outstanding debt, and the borrowing-base calculation with its reserves and facility limit. The cycle below shows how they connect.
COMMON FINANCING NEEDS
Three situations show three different reasons cash ends up tied up in receivables: customers who pay late, larger orders to fulfill, and sales that rise and fall through the year.
Extended payment terms can support strong customer relationships, yet suppliers, employees, and other expenses still come due before those invoices are paid.
A Ledgered Line of Credit provides borrowing availability against eligible outstanding receivables during that interval, so operations and commitments continue while customers pay.
Growth creates costs before it creates cash. Inventory, staffing, and capacity must be funded to fill larger customer orders.
As eligible invoice activity grows, a revolving facility supported by those receivables can help fund the requirements of fulfilling the orders.
Seasonal demand and fluctuating sales volumes leave cash tied up in receivables in some months and freed in others.
A revolving structure tied to eligible receivables follows those changing invoice balances, so recurring operating costs can be funded through the lean periods and repaid in the strong ones.
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FREQUENTLY ASKED QUESTIONS
Learn more about borrowing availability, eligible receivables, financing costs, and the practical considerations involved in a Ledgered Line of Credit.
Businesses with established customer relationships, meaningful accounts receivable, and recurring working capital requirements may benefit from this financing structure. Suitable borrowers often have ongoing invoice activity and need access to capital between delivering products or services and receiving customer payments.
Availability is generally set by a borrowing-base calculation on eligible accounts receivable. Great Elm’s published guidance cites advances of up to 90% of eligible receivables; actual availability depends on the advance rate, reserves, credit limit, outstanding borrowings, and underwriting.
Eligibility may depend on invoice age, payment terms, customer creditworthiness, concentration limits, and other characteristics of the receivables. Great Elm evaluates the underlying receivables and establishes eligibility requirements as part of the financing arrangement.
Interest is generally charged on outstanding drawn balances rather than the entire available credit amount. Pricing may be based on a benchmark interest rate plus an agreed margin, with applicable setup, maintenance, or transaction fees depending on the facility. Exact costs are established in the financing agreement.
A Ledgered Line of Credit is a borrowing arrangement secured by eligible accounts receivable, while traditional invoice factoring generally involves selling receivables to a financing provider. Both arrangements can improve access to working capital, but they differ in legal structure, pricing, collections, and customer-notification requirements. The specific terms determine how customer payments and receivables are managed.
Some receivables-backed credit facilities are structured to maintain confidentiality, while others may involve customer notifications or specific payment instructions. Notification and collection requirements depend on the financing arrangement and its documentation. Great Elm can explain the requirements applicable to a proposed facility.
The borrowing business generally remains responsible for its obligations under the credit agreement. Unpaid or ineligible invoices may reduce borrowing availability, require adjustments to the borrowing base, or create repayment obligations under the facility’s terms.
Great Elm’s published guidance indicates that, once a facility is established, funds are often available within 24 hours of submitting eligible invoices. Actual timing depends on reporting, invoice eligibility, facility requirements, and processing conditions.
Receivables-backed financing commonly involves ongoing reporting, which may include accounts receivable aging reports, borrowing-base certificates, and other financial information. Specific reporting requirements depend on the credit agreement and the structure of the facility.
Newer businesses may encounter qualification challenges if they have limited operating history or insufficient established receivables. Eligibility depends on factors such as invoice volume, customer credit quality, financial condition, and the lender’s underwriting requirements.
