For factoring brokers, one of the most frustrating situations occurs when an otherwise attractive prospect cannot be funded because another lender already holds the senior UCC position. The company may have a bank line, an SBA loan, tax liens, judgments, or an existing factoring arrangement that makes traditional accounts receivable financing difficult.
AeroFund Financial’s AeroPay Express provides brokers with another possible solution. It allows qualifying businesses to receive early payment on approved invoices without requiring AeroPay to file a UCC financing statement or take a security interest in the vendor’s assets.
Just as importantly, an AeroPay Express relationship can introduce a business to AeroFund and potentially lead to a traditional factoring arrangement as the company’s financing needs grow.
Not Traditional Factoring
AeroPay Express is best described as a buyer-approved early-payment or supply-chain-finance program. Although invoices are still at the heart of the transaction, the funding process differs significantly from conventional factoring.
Under a traditional factoring arrangement, a business sells or assigns its accounts receivable to a factor. The factor ordinarily files a UCC-1 financing statement covering the company’s accounts, receivable proceeds, and sometimes other assets. This filing protects the factor against competing secured creditors and helps prevent the same receivables from being financed elsewhere.
That requirement can become a problem when a bank, SBA lender, asset-based lender, or another factor already holds a blanket senior lien. The existing secured creditor may be unwilling to subordinate its position or release the accounts receivable.
AeroPay Express approaches the transaction differently. Rather than relying upon a first-position lien on all of the vendor’s receivables, AeroPay funds a specific invoice after the customer has reviewed and approved it for payment.
According to AeroPay, the company does not file a UCC against the vendor and does not take a security interest in the vendor’s assets. This makes the program a potential solution for companies that cannot disturb their existing secured credit facilities.
How AeroPay Express Works
The process is relatively straightforward:
- The vendor provides products or services to a business customer and generates an invoice.
- The vendor uploads the invoice to AeroPay Express.
- AeroPay sends the invoice to the customer for review and approval.
- Once the customer approves the invoice, AeroPay pays the vendor early, less an agreed discount.
- The customer later pays AeroPay according to the approved payment terms.
AeroPay advertises early payments generally ranging from 95% to 98% of the invoice. Unlike many factoring arrangements, there is no traditional reserve account waiting to be released after the customer pays.
The program is also advertised as non-recourse to the vendor for the customer’s failure to pay. Brokers should nevertheless review the actual agreement for customary exceptions involving invoice disputes, credits, returns, fraud, duplicate financing, or breaches of the vendor’s representations.
The Customer’s Approval Makes the Difference
With conventional factoring, the factor verifies that the goods or services were delivered and that the invoice represents a valid obligation. However, funding may occur before the account debtor has formally approved the invoice through its accounts-payable system.
AeroPay Express makes the buyer’s approval an essential part of the transaction. The buyer confirms the invoice before AeroPay releases its funds. AeroPay can therefore base its decision primarily on the approved payment obligation and the creditworthiness of the buyer rather than on a blanket security interest in the vendor’s assets.
This structure explains how AeroPay can potentially serve a company that already has a bank loan, SBA loan, existing factor, judgment, or tax lien.
It is important, however, not to confuse “no new UCC filing” with “no existing-lender issues.” A company’s current financing agreement may restrict the sale of receivables or the redirection of invoice payments. The client may still need to notify or obtain permission from its bank or factor, depending upon the terms of its existing agreement.
A Pay-As-Needed Alternative
Traditional factoring is generally intended to provide an ongoing source of working capital. The client regularly submits invoices, receives advances, and relies upon the factor for credit checking, collections, reporting, and account-management services.
AeroPay Express can be used more selectively. A vendor experiencing a temporary cash shortage may elect to receive early payment on a particular invoice without necessarily committing its entire accounts-receivable portfolio to a factor.
This can appeal to businesses that:
- Occasionally need to accelerate one or two large invoices.
- Have an existing bank line but require additional availability.
- Cannot provide additional collateral to another lender.
- Do not want to replace their current financing arrangement.
- Have strong commercial customers willing to approve invoices.
- Need cash immediately to meet payroll, purchase materials, or accept another order.
- Sell to customers with payment terms of 30, 60, or 90 days.
AeroPay states that its program is not a merchant cash advance and does not require automatic daily or weekly withdrawals from the vendor’s bank account. The cost is instead represented by the discount the vendor accepts in exchange for receiving payment early.
An Excellent Home for Difficult Leads
For commercial finance brokers, AeroPay Express creates a new destination for prospects who might otherwise be declined or placed in a follow-up file.
A broker may encounter an attractive company with legitimate invoices and creditworthy customers, only to discover that a bank already has a senior blanket lien. Under ordinary circumstances, the broker would need to arrange a subordination agreement, persuade the bank to carve out the receivables, or wait until the existing loan is paid off.
AeroPay may be able to fund approved invoices without requiring any of those steps.
AeroFund is also offering brokers and referral sources $25 for qualifying AeroPay Express leads. This gives brokers an immediate reason to revisit prospects that were previously considered unfundable.
Possible leads may already be sitting in the broker’s CRM:
- Prospects rejected because of an existing senior UCC filing.
- Companies with SBA loans.
- Businesses using bank credit lines that are temporarily insufficient.
- Prospects with tax liens or judgments.
- Companies already using another factor but needing supplemental liquidity.
- Former factoring prospects that wanted funding without a long-term agreement.
- Businesses that only occasionally require invoice acceleration.
Rather than labeling these companies as declined leads, brokers can establish an “AeroPay Prospect” category and begin a new follow-up campaign.
Today’s AeroPay Client Could Become Tomorrow’s Factoring Client
The greatest long-term opportunity may extend beyond the initial $25 lead payment.
AeroPay Express gives AeroFund an opportunity to establish a working relationship with the business. AeroFund becomes familiar with the company, its owners, its invoices, and the quality of its customers. At the same time, the business owner learns how invoice-based financing can improve cash flow and support growth.
A company may initially need early payment on only one large invoice. Several months later, however, it may acquire a major customer, add employees, enter a rapid-growth period, or outgrow its bank line. Its occasional need for early payment can develop into a continuing need to finance most or all of its accounts receivable.
At that point, traditional factoring may become the more appropriate solution.
A business may also decide that it needs more than occasional funding. It may benefit from ongoing credit checking, customer monitoring, collections assistance, online reporting, and predictable advances against its entire receivable portfolio. These are services normally associated with a full factoring relationship.
AeroPay Express can therefore act as an introductory product—a relatively simple first step that allows the prospect to experience receivables-based funding before entering a broader factoring arrangement.
A New Reason to Stay in Contact
Brokers should not treat the AeroPay referral as a completed transaction and then forget about the prospect. The business should remain in the broker’s CRM and be placed in an appropriate follow-up campaign.
The broker should periodically ask:
- Is the company using AeroPay more frequently?
- Are its monthly sales increasing?
- Has it added one or more major customers?
- Is its existing bank line becoming restrictive?
- Does it now need advances against a larger portion of its receivables?
- Would full-service factoring provide more predictable working capital?
These conversations can uncover the moment when an occasional AeroPay user becomes a genuine factoring candidate.
AeroPay Express does not replace traditional factoring in every situation. Instead, it fills an important gap between waiting for customers to pay and entering a conventional secured factoring arrangement. It gives brokers a way to assist businesses that have strong invoices but complicated lien positions or only occasional funding requirements.
Most importantly, it allows the broker to begin a financial relationship today that may produce a much larger factoring opportunity tomorrow.
For additional product information, brokers can visit AeroPayExpress.com or review the company’s broker information.