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Accounts Receivable Factoring

Stop putting your growth on hold and start thriving with frictionless financing for every business need.

A/R Financing With National Business Capital

Everyone expects their clients to pay on time, but it’s not always the reality. In some cases, you’ll have to wait months before they honor your agreement—unpaid invoices can drastically affect your business’s finances and capabilities. 

Cash flow constraints can put you behind on paying vendors, suppliers, bills, and even your employees. It can also prevent you from going after new opportunities, which can halt your plans and make growth much more challenging.

You can’t stay competitive if your funds are tied up in unpaid invoices and late customer payments. Fortunately, accounts receivable factoring is way around this financial hurdle. Accounts receivable factoring, otherwise known as “A/R financing,” is a type of business financing that allows you to transform your outstanding receivables into working capital.

With National Business Capital, you can see success on your schedule with frictionless access to essential capital. Our 75+ lender marketplace and expert team combine to form a time-saving machine for business owners, allowing them to save countless hours they would have spent waiting at their bank. 

Here’s everything you need to know about accounts receivable factoring.

  • Plus IconWhat Is Accounts Receivable Factoring?
  • Plus IconHow Does Accounts Receivable Factoring Work?
  • Plus IconWhat Are the Two Types of Accounts Receivable Factoring?
  • Plus IconDo You Qualify for AR Factoring?
  • Plus IconWhat Are Typical Factoring Rates, Terms, and Funding Amounts?
  • Plus IconWhat Are the Advantages and Disadvantages of AR Factoring?

What Is Accounts Receivable Factoring?

What Is Accounts Receivable Factoring?

Accounts receivable factoring is a business funding solution that allows you to exchange your unpaid invoices for cash. Instead of waiting weeks or months for customers to send payments, accounts receivable factoring gives you immediate access to working capital.

By improving your liquidity, you’ll be in a stronger position to fulfill your business’s functions and needs.

Accounts receivable factoring, also called invoice factoring or factoring receivables, gives you an advance on your unpaid invoices. Whether your customers are slow or if you’re a healthcare practitioner waiting on insurance companies to process payments – you don’t need to allow third-party issues to affect the way you manage your business.

You can make use of accounts receivable factoring to cover almost any type of business expense. From managing working capital expenses, financing new projects, investing in marketing campaigns, and more.

Accounts receivable factoring is sought-after by many industries, but it’s especially common among the following types of businesses:

  • Wholesale distributors
  • Transportation companies
  • Contractors
  • Tech companies
  • Medical and dental practices
  • Automotive shops
  • Manufacturers
  • Service businesses

How Does Accounts Receivable Factoring Work?

How Does Accounts Receivable Factoring Work?

Accounts receivable factoring is not a traditional business loan. Instead, it functions more as an advance on your business’s unpaid invoices.

It’s important to keep in mind that you won’t receive the full dollar amount of your unpaid invoices. The financing company will retain a certain percentage. However, you should be able to keep about 90% or more of their full value.

Accounts receivable factoring only comes into play after your business has delivered the goods and services to the customer. First, a business owner essentially sells their accounts receivables to a lender. These receivables will act as collateral, in case of foreclosure.

Borrowers then receive a revolving line of credit in exchange. This credit line offers a fast and flexible source of capital that they can then draw from as needed.

Here’s a glimpse at how the process works:

  1. You’ll send an invoice to your customer after having delivered the goods and services promised. At this point, you should have an estimate of how long it will take the customer to submit payment.
  2. You’ll approach a lender with your need for accounts receivable financing. They’ll take into account the value of your outstanding invoices as well as the creditworthiness of the customer.
  3. Your business will get the invoice amount, minus a small fee. You can typically opt to receive funds in a lump sum or in the form of a business line of credit. Make sure to consult with your lender on what would make the most sense for your business.

What Are the Two Types of Accounts Receivable Factoring?

What Are the Two Types of Accounts Receivable Factoring?

There are two main types of accounts receivable factoring – recourse factoring and non-recourse factoring. Here’s how the two compare.

1. Recourse factoring

Recourse factoring is when you’ve sold your unpaid invoice to the lender, you’ve collected your funds, but you’re ultimately still responsible if the customer refuses to pay. If this happens, you’ll be in debt to the lender you’ve worked with and have to manage collection efforts from the customer yourself.

Factoring receivables with recourse are the most common type of setup. Although you’ll be taking on extra risk in case your customer refuses to make payment, you’ll pay a smaller fee when you receive funds upfront.

2. Non-recourse factoring

Non-recourse factoring is when the lender takes on the entire responsibility for the unpaid invoice. They will pay you upfront and then deal with your customer directly to recuperate the unpaid amount. If the customer refuses to pay, the lender will have to manage collection efforts.

Non-recourse factoring is riskier for lenders. To compensate, they’ll charge you a higher fee, and you’ll receive a smaller portion of your invoice. Your customer’s creditworthiness will also be an important determining factor throughout the approval process.

Do You Qualify for AR Factoring?

Do You Qualify for AR Factoring?

In general, it’s easier to qualify for AR factoring than for other types of business funding solutions. The process is also much faster, and you may be able to receive your funds in just a few business days. In order to qualify for AR factoring, you’ll need to have:

1. Established invoices

AR factoring only comes into play once you’ve delivered the goods and services to the customer, submitted your invoice, and you’re waiting for payment. You’ll need to show established invoices with details of the transaction.

Accounts receivable factoring journal entries should contain prices, dates, customer information, payment timelines, and more. Lenders will review the value of your unpaid invoices into their factoring accounts receivable formula to determine your possible funding amount.

2. Customers with good credit

With AR factoring, your customer’s credit score will matter more than your own. This is because the lender is relying on your customer’s ability to pay the invoice – not your business.

For this reason, AR factoring can be an accessible financing solution if you haven’t built up credit or if your business’s credit score isn’t in the best shape.

3. Customers in good standing

Alongside reviewing your customer’s creditworthiness, the lender or AR factoring company will want to know your customer has a solid reputation and that their business is in good standing.

In general, lenders will approve customers that are businesses or government agencies, but you may run into difficulties if you’ve sold to an individual buyer.

4. Business history

Most lenders will want to see that your business has been operating for a certain amount of time before approving you for financing. When you work with National, you can qualify for AR factoring with as little as 6 months of business history. This can be a great solution if you’re a newer business or a startup.

5. Revenue requirements

While the value of your unpaid invoices will determine your funding amount, your business will also need to meet certain revenue requirements to qualify in the first place. National is able to supply AR factoring to businesses with a minimum monthly revenue of $40,000.

What Are Typical Factoring Rates, Terms, and Funding Amounts?

What Are Typical Factoring Rates, Terms, and Funding Amounts?

Accounts receivable lines of credit follow True APR, which is a generally lower and more cost-effective means of interest compared to factor rates. They are common among small business loans.

1. Account Factoring Rates

Account factoring rates tend to be on the middle to lower end of business financing. You will be paid the majority of the value for your unpaid invoices, with a small percentage taken by the lender as a fee for the service. The specifics can vary according to your customer’s creditworthiness and other details, but generally, you should receive as much or more than 90% of your total unpaid invoice’s value.

Account factoring rates start at the prime rate, typically between 3.5% to 4%, and go upwards from there. Because your funding is secured by your unpaid invoices, you’ll find account factoring tends to be a more affordable type of business financing.

2. Account Factoring Terms

Account factoring terms are flexible, and you may be able to choose how you’d like to receive your funds. Many businesses will opt to receive their proceeds from account factoring in the form of a business line of credit.

A business line of credit is highly adaptable to your financial needs. You’ll receive a credit limit which you can draw from as you go and only pay for the funds you use. Plus, once your balance is paid down, the same funds will once again become available to use.

3. Account Factoring Funding Amounts

Account factoring funding amounts depend on the total value of your unpaid invoices. In general, you should expect the amount you’ll receive to be slightly lower than the value of your invoices. With National, you may be eligible for funding amounts as high as $25 million.

Here are the terms that come with AR financing through NBC:

  • Financing Amount: AR Factoring offers amounts anywhere from $10K-$5 Million
  • Flexible Terms: With revolving credit lines mentioned earlier, you are in total control as to how you manage financing your business
  • Time to Fund: 2-5 days; minimized paperwork and expedited funding makes AR factoring one of the fastest financing options available

What Are the Advantages and Disadvantages of AR Factoring?

What Are the Advantages and Disadvantages of AR Factoring?

Every business is different, so AR factoring might not have the same benefits for one business as it does for another. However, here are a few common advantages and disadvantages of this financing option that we’ve seen across our clients.


  • Take advantage of new opportunities
    • If you don’t have the funds to seize on new opportunities as they arise, your business could miss out. AR factoring gives you the liquidity you need to make the most of your business’s potential.
  • Solve challenges on the spot
    • Challenges and unexpected expenses can flare up from time to time. When this happens, AR factoring provides your business with much-needed capital to get things back on track. Use funds to pay employees, purchase supplies, buy inventory, cover overhead expenses, and keep your business running smoothly.
  • Avoid debt
    • AR factoring is different from traditional business loans in that you won’t necessarily be taking on debt. This means you can get much-needed funds for your business without dramatically altering your business’s financials.


With AR factoring, your customers will no longer be paying you directly for a set invoice. Instead, they will be paying the lender or AR company. This can alert your customers about your potential cash flow issues, which may or may not be an issue for your business.

You’ll also be taking on a certain level of risk with AR factoring. In case the customer refuses to make a payment, you could be responsible for the sum. There are ways to avoid this setup, but you’ll have to pay a higher fee for funding.

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How Can Accounts Receivable Factoring Benefit Your Industry?

See the specific benefits of AR factoring for your industry. If you don’t see yours, feel free to reach out to our team for more information.

Accounts Receivable Factoring for Construction

Contractors are using AR financing to turn their receivables into a source of funds to:

  • Purchase, lease or upgrade heavy equipment
  • Lower costs on foreign and domestic materials
  • Hire builders, architects, operators, and other types of workers
  • Take on more projects

Accounts Receivable Factoring for Wholesale Distributors

AR lines of credit are a great way for wholesale distributors to:

  • Fill orders from impatient customers on time-or ahead of schedule
  • Cover transportation expenses, fees and insurance payments
  • Keep up with overhead expenses
  • Grow and expand warehouse operations and capabilities

Accounts Receivable Factoring for Transportation Businesses

  • Add new vehicles to your fleet
  • Cover vehicle fees, repairs and insurance costs
  • Hire additional drivers
  • Provide faster service to more customers

Accounts Receivable Factoring for Medical Practices

  • Cover slow healthcare payments
  • Pay for medical or dental supplies in bulk
  • Cover office expenses and utilities
  • Purchase, lease or upgrade medical equipment and machinery

Accounts Receivable Factoring for Service Businesses

  • Act on customer demands faster
  • Get new equipment and supplies
  • Cover overhead expenses
  • Add more vehicles to your fleet, if needed

Accounts Receivable Factoring for Tech Companies

  • Purchase security and safety equipment
  • Update machinery, tools and inventory
  • Cover overhead expenses including hiring staff, and utilities
  • Service more customers with increased speed and efficiency

Accounts Receivable Factoring for Automotive Businesses

  • Purchase domestic and foreign auto parts at lower costs
  • Acquire auto materials and supplies faster and more frequently
  • Hire auto service workers, and manage payroll
  • Update automotive machinery, tools and supplies

Accounts Receivable Factoring for Manufacturing Companies

  • Adapt to industry changes involving tariffs
  • Fill customer orders faster and easier
  • Update manufacturing machinery and heavy equipment
  • Hire equipment operators and additional staff

AR Factoring: A Use for Any Industry

Immediate access to cash whenever you need it is an extremely helpful tool for any business that is constantly having to make unexpected purchases, and solve unexpected challenges.

Accounts receivable factoring gives you this opportunity.

Cash flow challenges prevent many businesses from managing their day-to-day expenditures or to fulfill business goals such as expansion.

Besides accounts receivable factoring, National Business Capital can also recommend additional financial tools that will allow small businesses to fulfill monetary obligations, and sell products and services.

For example, NBC can also assist these firms to establish a business line of credit that provides quick access to additional capital when needed.

Through AR factoring, we have assisted companies all over the country to improve their existing business, but also to position themselves well for the future. Contact us, and let us go to work to find the right lender for your unique circumstances.