Our line of credit product is extremely popular with enterprise businesses who often carry large Accounts Receivable (“A/R”), as our customers can then access those unpaid revenues as needed. At Dealstruck we grant a line of credit that’s equivalent to 85% of your current A/R, but a common concern we hear from clients is:

“I don’t need 85% of my A/R, I need all of it!”

Let us be clear. You will receive 100% of your A/R when is paid down by your clients. We simply provide you with 85% of that to you in advance with our line of credit. We aren’t “factoring”, or purchasing your A/R at a discounted rate. We are simply granting you credit based on revenues that you have already earned, but not yet collected.

Let’s illustrate how this works with an example:

Today (t=0), you have $100K in outstanding A/R and 15% gross margins.

Let’s assume that you have no need for cash within the month.  In this case, your outcome would be the same with or without a line of credit (LoC). Without a need for cash, you would not draw the line so you would incur no interest cost.  Under both scenarios you will collect on this balance in 30-days, providing you with a $100K cash inflow and $15K of gross margin.

However, midway through the month (t=15) the opportunity to pursue a new project arises that will require $85K of capital to pursue.

Without a LoC, you will be forced to pass on this project while you wait to collect $100K on at month-end (t=30).  However, with our credit line, you draw $85K on t=15 to finance the project.  Two weeks later, at t=30, your first invoice pays down bringing in $100K. After paying down the credit line balance ($85K) and interest expense ($708)[1], you end up with $14,292 in cash.

But, now you have a second project underway.  After completing the project (t=45) you send an invoice and 30-days later you collect $100K.  This brings your total cash inflows to $114,292 with a line of credit, as opposed to $100K.  And it brings your gross margin to $29,292 instead of $15K – nearly double!

If you repeat this scenario many times over, you can see how much additional revenue and gross margin ready access to capital can generate for you.

So, what happened with my 15%?

Even with back of the envelope math, it is clear that the $708 of interest expense you incur is far less than 15% of your revenue (which would be a whopping $15K).  Let’s take a deeper look at when and where that 15% made it back to you:

With invoice #1, you received $85K at t=15 and deploy that cash into project #2.  At t=30, the cash inflow of $100K occurs from the first invoice. Without the LoC, you notice $100K of cash in your account.  With the LoC you notice only $14,292.  This represents the extra 15% less interest expense.

But, the big difference between these scenarios is that with the line of credit you had liquidity to take on a second project, so effectively $85K is still at work for you.  When the second invoices pay down, you capture the entire $100K and your cash balance is now $114,292.

Even in a scenario with only two invoices, it is easy to see how you could get the impression that the LoC is draining cash – recall, at t=30 you had $100K without the LoC and $14K with it.  However, this obscures the reality of your business which is involved in a continuous cycle of billing and collecting.

Key Takeaway:

You’ll get 100% of your A/R as your clients pay.  We’ll loan you up to 85% of what your A/R balance is, and you only accrue interest on what you’ve drawn from the line of credit. It’s that simple.


[1] 19.99% APR for 15-days on a $50K balance)