Loan type
Accounts receivable financing: borrowing against invoices without selling them
AR financing is a loan secured by your invoices. You keep ownership, you keep collecting, and your customers never find out.
At a glance
| Typical facility | $50,000 to $10 million |
|---|---|
| Advance rate | 70% to 90% of eligible receivables |
| Cost | 8% - 30% APR |
| Structure | Revolving line that grows and shrinks with your receivables |
| Who collects | You do. Your customers are usually not notified |
| Who bears the credit risk | You. An unpaid invoice comes off the borrowing base |
| Requirements | Reliable aging reports, B2B invoices, usually $500k+ annual revenue |
| Time to funding | 2 to 6 weeks to set up, then continuous |
A good fit when
You invoice businesses on terms, you have organized books, and you would rather not have your customers paying a third party.
A poor fit when
Your aging report is a mess, your customers are weak credits, or you need money before you could produce a clean AR schedule.
The distinction that matters
| AR financing | Invoice factoring | |
|---|---|---|
| What happens | You borrow against invoices | You sell the invoices |
| Who owns the invoice | You | The factor |
| Who collects | You | The factor |
| Does your customer know | Usually not | Usually yes — notice of assignment |
| On your balance sheet | As debt | Generally not, it is a sale |
| Cost | 8% to 30% APR | 12% to 60%+ annualized |
| Qualifying | Harder — needs real financial controls | Easier — underwritten on your customers |
| Credit risk on non-payment | Yours | Yours (recourse) or the factor's (non-recourse) |
The short version: AR financing is cheaper and more discreet; factoring is easier to get and takes the collections work off your desk. Businesses generally graduate from factoring to AR financing as their books and their size improve.
How a borrowing base works
This is the mechanism that trips people up. You do not get a fixed line. You get a line capped by a borrowing base — the eligible portion of your receivables, recalculated regularly, usually monthly and sometimes weekly.
- Ineligible receivables are excluded entirely. Common exclusions: invoices more than 90 days old, anything from a related party, foreign receivables, and disputed invoices.
- Concentration limits cap how much of the base one customer can represent, commonly 15% to 25%. If one customer is 60% of your book, most of it is ineligible.
- Cross-aging rules: if a meaningful share of one customer's invoices go past due, that customer's entire balance may become ineligible.
- The advance rate — typically 70% to 90% — applies to what remains.
What you take on operationally
AR financing requires more of you than factoring does, and that is the real cost.
- A reliable, current aging report, produced on the lender's schedule.
- A borrowing base certificate, usually monthly, certifying eligible receivables.
- Periodic field exams or audits on larger facilities — the lender verifies your receivables exist. Budget for the cost, which you usually pay.
- A lockbox, on many facilities. Customer payments go to an account the lender controls, and are applied against your balance. Your customers see a payment address, not a factor.
Where it sits in the cost ladder
For a business that invoices other businesses, the ladder usually runs: bank line of credit, then SBA-backed line, then AR financing, then factoring, then online lines, then advances. AR financing is the point where you stop needing a general credit approval and start borrowing against something concrete — which is why it is available to businesses that cannot get a clean bank line.
Questions people actually ask
Is accounts receivable financing the same as factoring?
No. AR financing is a loan secured by invoices you still own and still collect. Factoring is an outright sale of the invoices, where the factor collects. AR financing is cheaper and your customers generally never know; factoring is easier to qualify for and removes collections from your workload.
Will my customers know I am using AR financing?
Usually not. Most AR facilities are non-notification — you continue invoicing and collecting normally. If there is a lockbox, customers send payment to a different address, which is unremarkable and not identifiable as a lender.
What revenue do I need for AR financing?
Most providers want at least $500,000 in annual revenue and a receivables balance large enough to justify the setup cost, often $100,000 or more outstanding. Below that, factoring is generally the practical route.
What happens if a customer does not pay?
That invoice becomes ineligible and comes out of your borrowing base, which reduces your available credit — and if you have already drawn against it, you must pay the difference down. The credit risk stays with you. This is the key difference from non-recourse factoring.