Accounts receivable financing.
Unpaid invoices are a problem in all types of businesses. AR financing is the solution.
What is accounts receivable financing?
In essence, AR financing turns your unpaid invoices into instant capital, enabling businesses to maintain a steady cash flow and invest in growth opportunities without being constrained by slow-paying customers.
Accounts receivable loan vs. accounts receivable factoring.
An accounts receivable loan (sometimes used interchangeably with accounts receivable financing) is essentially a credit agreement where your business’s unpaid invoices serve as collateral. You maintain control over your accounts receivable and are responsible for collecting payment from your clients. The loan must be paid back based on the agreed terms, regardless of whether your customers have paid their invoices.
On the other hand, accounts receivable factoring involves selling your unpaid invoices to a factoring company at a discount. The factoring company takes over the responsibility of collecting payments directly from your clients. In this case, there’s no debt to repay as the transaction is treated as a sale, not a loan. This is the most common type of accounts receivable financing.
How does accounts receivable financing work?
Invoice your clients: Continue your business operations as usual by providing goods or services to your customers and issuing invoices accordingly.
Receive immediate funding: The financing company then provides you with a cash advance, typically up to 90% of the invoice value, within 24 hours.
Customer payment: The invoice payment terms remain the same for your customers. In the case of an A/R loan, they pay you according to the agreed-upon payment schedule. Once your customer pays the invoice, you repay the financing company for the cash advance provided, along with any fees or interest. In the case of factoring, the factoring company takes over the responsibility of collecting payments directly from your customers. Once your customer pays the invoice, the factoring company will pay you the remaining balance minus the factoring fees.
Minimum requirements for a short-term loan.
*Qualification criteria, rates, and other funding terms will vary depending on the type and location of your business, and upon other factors. This is not a guarantee of funding, and it should not be relied upon as an accurate assessment of the availability or terms of the represented funding products.
How much can I qualify for?
Not sure what you need or what funding options are best for you? Use our simple calculator to get a rough idea of your options with no commitment, and apply when you’re ready.
How to apply for accounts receivable financing.
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FAQs
Find answers to some commonly asked questions about accounts receivable financing.
Fast access
With receivable loans, you can increase your cash flow as fast as 24 hours. You’ll quickly determine if you qualify and get early payment with invoice financing. This immediate cash can cover operational expenses or invest in growth opportunities.
Don’t wait to get paid.
With Accounts Receivable Financing, you no longer need to wait for weeks or months to get paid by clients. This solution converts outstanding invoices into immediate cash, bypassing the hassle of delayed customer payments. It’s a proactive way to manage your cash flow and ensure smooth business operations.
No credit score requirements.
Accounts receivable financing stands out because it typically doesn’t require a credit check. Unlike traditional loans, the focus is on your customers’ creditworthiness. The financing company considers their payment history and reliability, as their payments cover the funding. This makes it an ideal solution for businesses with a strong customer base and consistent payment records, even if their credit scores aren’t perfect.
To qualify for accounts receivable financing, the following are the standard requirements:
- Your business should be B2B or B2G
- Minimum monthly revenue of $10,000
- Operate in the funder’s preferred industry
There are four types of AR financing available:
- AR loan: An advance secured by your accounts receivable.
- Invoice factoring: The sale of all or a portion of your outstanding invoices to a third party.
- Inventory financing: Uses inventory as collateral for a loan, helping businesses buy raw materials and prepare for large orders.
- PO financing: Provides funding to cover the cost of delivering goods by paying suppliers.
This type of financing helps to keep cash flow in check so that your business operations and growth aren’t stunted due to outstanding invoices.
Accounts receivable is a type of debt owed to a small business when a customer purchases a product or service but has not paid yet.
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