Funding to bridge the gap until a receivable pays

Why receivable gaps happen to healthy businesses

A receivable gap is the time between doing the work and getting paid. Profitable companies hit it all the time because costs come due before customers pay.

Payroll runs every two weeks. Suppliers want payment in 15 or 30 days. Your customer, though, may pay on net 45 or net 60 terms, and some pay later than that. A business can show a profit on paper and still be unable to cover Friday's payroll.

The gap grows when a single customer is a big share of revenue. One slow payer can strain the whole month. That is a timing problem, not a profit problem, and timing problems are what bridge funding is designed for.

Work out the size and length of the gap

Bridge funding should match the amount you need and the number of days until payment. Borrowing more or longer than that only adds cost.

Write down three things. First, the invoice amount and its expected payment date. Second, the bills that fall due before then. Third, the cash you have on hand. The shortfall between the second and third numbers is your gap.

Illustrative example: a staffing company is owed $60,000 due in 45 days. Payroll and taxes before then total $48,000, and the account holds $15,000. The gap is $33,000, and it needs to be covered for roughly 30 days. Borrowing $60,000 because the invoice is that size would cost more than necessary.

Add a buffer of 10 to 15 percent for late payment, since invoices often arrive after the promised date.

Options that fit a short-term bridge

Three ROI Funder products suit receivable gaps: working capital for speed, a line of credit for repeat gaps, and revenue-based financing when repayment should follow sales.

• Working capital: a lump sum for a one-time gap. On approved, complete files, funds can arrive the same business day.
• Business line of credit: draw when the invoice is outstanding, repay when it clears, then redraw next time. Best if gaps recur. Typical timing is 24 to 72 hours.
• Revenue-based financing: repayment is a share of sales, so it flexes when a slow month follows a slow payer.

A fixed-payment term loan can work too, but it fits long-term needs better than a gap of a few weeks.

Invoice factoring and receivables financing explained

Invoice factoring sells or borrows against unpaid invoices for an advance. It is a real option for some businesses, but ROI Funder does not place factoring or accounts receivable financing.

With factoring, a company advances a percentage of an invoice, collects from your customer, then pays you the rest minus a fee. Fees are often quoted per week or month the invoice stays open, so slow-paying customers cost more. Your customer is usually told about the arrangement, which matters if you worry about how clients react.

Factoring tends to fit businesses with many creditworthy commercial customers and thin personal credit. It tends not to fit businesses that bill consumers or have disputed invoices. Read our overviews of invoice factoring and accounts receivable financing for detail. If you want funding that does not depend on a single invoice, the products above are the closest ROI Funder fit.

Comparing the true cost of a short bridge

A short bridge can look cheap in dollars but expensive when converted to an annual rate. Compare total payback and what you gain by avoiding late fees or missed payroll.

Short funding amplifies the effect of fees. A $33,000 advance with a total payback of $36,300 costs $3,300, which is 10 percent for about a month. That is a high annualized figure, yet it may be well below what a missed supplier discount, late fees or a damaged vendor relationship would cost.

The test is simple: does the cost of the bridge come in under the cost of the problem it solves? Use our offer comparison worksheet to line up total payback, payment size and term side by side.

Protecting the customer relationship

Bridge funding lets you stay patient with a slow payer instead of pressuring a good customer.

Cash stress often pushes owners into awkward collection calls that damage good accounts. A bridge removes that pressure, but it works best alongside better collection habits. Send invoices the day work is complete, state the due date and accepted payment methods plainly, and follow up a few days before the due date, not after. For large customers, find out who approves payment and whether your invoice is stuck in their system.

Consider adding a small early-payment discount or a late fee in your contract for new work. Over time, these changes shrink the gap itself, so you rely on bridge funding less often and the business becomes less sensitive to one slow payer.

How to apply and what you need

Apply online in a few minutes with a soft credit pull. Have 3 months of business bank statements ready for a complete file.

ROI Funder considers 6+ months in business, $20,000+ in monthly revenue and 500+ FICO. The amount range is $5,000 to $5,000,000. Offers are matched to the funders in our network that fit your file, and you can decline any offer.

Do not wait until payroll is due tomorrow. Start the application as soon as you see the gap forming, so you can compare more than one offer.