Also known as: AR financing, receivables financing, AR lending, receivables finance
Accounts receivable financing is a way of borrowing money using a business's unpaid invoices as collateral. Unlike factoring, where invoices are sold outright, AR financing is a loan or revolving line of credit secured by receivables — the business keeps ownership of its invoices and continues collecting from its own customers. The lender advances a percentage of the outstanding receivables balance and is repaid as the business collects.
The two are often confused because both turn receivables into cash, but the mechanics differ. In factoring you sell the invoices, the factor collects directly from your customers, and your customers usually know a factor is involved. In accounts receivable financing you borrow against the invoices, you keep collecting yourself, and the arrangement is typically invisible to your customers. Factoring approval rests on your customers' credit; AR financing weighs both the receivables and your own business more heavily. AR financing tends to be cheaper but harder to qualify for; factoring is faster and more accessible.
The lender sets a borrowing base — a percentage (commonly 70-90%) of eligible outstanding invoices — and lets the business draw against it like a line of credit. As new invoices are issued the available credit grows; as customers pay, the balance is paid down and credit is freed up again. Interest accrues only on what is drawn. Eligibility rules usually exclude invoices that are too old, owed by weak-credit customers, or concentrated in a single account.
Accounts receivable financing comes in a few forms. The most common is an asset-based line of credit, where a revolving facility is sized to a borrowing base of eligible receivables and the business draws as needed. Some lenders offer selective or spot receivables financing, where a business borrows against specific invoices rather than its whole ledger — useful when only one or two large customers create the cash gap. Trade receivable financing is the same idea applied to B2B trade invoices specifically, which is the most common context for the product. Whichever structure is used, the defining trait is that the receivables secure the debt rather than being sold.
Pricing has two parts: how much the lender advances and what it charges. Advance rates commonly run 70-90% of eligible receivables, with the remainder released — less fees — once the customer pays. Cost is usually quoted as interest on the drawn balance, often a base rate such as prime plus a margin, sometimes with a small monthly servicing or facility fee. Because the business keeps collecting and the lender's risk is lower than in factoring, AR financing is typically cheaper than factoring, though it is more expensive than a conventional bank line of credit for borrowers who can qualify for one.
AR financing fits businesses that invoice other businesses on credit terms and have creditworthy, reasonably diversified customers. Lenders underwrite the quality and age of the receivables first — current invoices owed by strong payers, not balances 90+ days past due or concentrated in a single shaky customer — and then weigh the borrower's own financials. Common eligibility cut-offs exclude invoices that are too old, intercompany, or owed by customers with weak credit. A clean accounts-receivable aging report and organized invoicing make approval far easier.
Suppose a staffing firm has $500,000 in outstanding invoices owed by corporate clients on net-30 terms. A lender sets an 85% advance rate, giving the firm access to a revolving line of up to $425,000. The firm draws $200,000 to cover payroll and pays interest only on that $200,000; as clients pay their invoices, the balance is repaid and the available credit is restored. New invoices raised the following month grow the borrowing base again — so the line scales with the business's sales.
Because the invoices are pledged rather than sold, accounts receivable financing stays on the balance sheet: the receivables remain assets and the advance is recorded as a liability. This is the key accounting difference from factoring, where the receivables are removed from the books because they have been sold. The distinction matters for leverage ratios, loan covenants, and how the arrangement looks to other creditors — points a broker should be ready to explain to clients comparing the two options.
AR financing lets a growing business unlock cash tied up in receivables without selling those invoices or adding the customer-facing footprint of a factor. For businesses with strong customers and reliable invoicing, it is often a lower-cost alternative to factoring, which makes it a key option for brokers to know alongside factoring and working-capital loans.
With factoring you sell your invoices and the factor collects from your customers. With AR financing you borrow against your invoices as collateral, keep ownership, and keep collecting yourself. Factoring is faster and easier to qualify for; AR financing is usually cheaper but more selective.
Yes — unlike factoring, AR financing is debt. You borrow against your invoices as collateral and keep ownership of them, rather than selling them. It most often takes the form of a revolving line of credit secured by your receivables.
Yes. Borrowing against accounts receivable is exactly what AR financing is — the unpaid invoices serve as collateral for a loan or revolving line, and the lender advances a percentage of their value while you keep collecting from your customers.
Lenders commonly advance 70-90% of eligible invoices and charge interest on the drawn balance — often a base rate plus a margin, sometimes with a small monthly facility fee. It is generally cheaper than factoring but more expensive than a traditional bank line of credit.
The receivables stay on your balance sheet as assets and the advance is recorded as a liability. That is the opposite of factoring, where invoices are removed from the books because they are sold — so AR financing adds debt while factoring does not.
Businesses that invoice other businesses (B2B) on credit terms and have creditworthy customers are the best fit. Lenders look at the quality and age of the receivables and the diversity of the customer base, not just the borrower's own credit.
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