Accounts receivable (AR) financing uses your outstanding invoices as the basis for funding. Unlike factoring, where receivables are sold, AR financing typically works as a borrowing arrangement: the invoices serve as collateral and you continue collecting from customers.
It is a natural fit for B2B companies with reliable commercial clients and payment terms of 30–90 days.
How it generally works
A funder advances a percentage of eligible receivables : often a substantial majority of their value : into a facility. As customers pay their invoices, you repay the drawn amounts; the line can usually be redrawn against new invoices.
Because you collect your own invoices, customer relationships and payment flows typically stay in your hands.
Common uses
- Covering payroll between client payments
- Taking on larger contracts without cash-flow strain
- Smoothing seasonal revenue cycles
- Funding supplier payments to capture early-payment discounts
- General operating needs while receivables mature
Qualification factors providers commonly review
- Quality and concentration of your customer base
- Invoice aging and collection history
- Absence of conflicting liens on receivables
- Business revenue and operating history
- Billing accuracy and documentation
Factoring vs AR financing: the key differences
Factoring sells the invoices; the factor collects and customers are notified. AR financing borrows against them; you collect and customers often remain unaware. Factoring may be accessible with weaker business credit; AR facilities often require stronger operations and clean receivables.
How repayment is typically structured
Drawn amounts are repaid as your customers settle their invoices, with fees accruing on outstanding balances. Facilities often operate like a line of credit that grows with your receivables.