What is Accounts Receivable Financing & How Does it Work? | National


We are processing your information.

Please hold tight for a few seconds!

WE Secured
IN Financing
OWNERS national business capital logo

What is Accounts Receivable Financing and How Does it Work?

Listen To This Article

Accounts receivable financing — which is sometimes referred to as factoring — is a type of asset-based funding in which you use outstanding invoices (or any other receivables) as collateral.

In return, you receive a lump sum that is less than the total amount owed — usually around 70 to 90 percent, depending on the lender and the specific details of the financing agreement. When an invoice becomes due, your customer pays the lender directly, who keeps an agreed upon portion to cover principal, interest and fees. Any remaining amount is sent to you.

what is accounts receivable financing and how does it work

Advantages of Accounts Receivable Financing

There are some notable advantages to accounts receivable financing, including:

  • The lender assumes all of the default risk associated with the accounts receivables. As such, if any of your customers do not pay (in full and/or on time), you are not responsible for collections, or exposed to potential losses. With this being said, you will be able to see which of your customers has paid and which hasn’t (typically through a web dashboard or reports provided to you by your lender). 
  • The application and processing time is rapid. Whereas banks can take several weeks or months to evaluate a loan application — and still may not approve it — getting funds via accounts receivable financing usually takes a matter of days. This can enable you to take advantage of volume or early payment discounts on supplies, equipment, inventory and so on. It is also ideal for covering temporary cash flow shortfalls due to seasonal demand variations.
  • Unlike conventional bank business loans, you don’t have to create and commit to a repayment schedule. You get the agreed upon funding up-front, and it’s up to the lender to take care of all administration. In other words: there is nothing for you to pay back.
  • You do not need to use all of your outstanding invoices to obtain funding. You can a portion in order to get the working capital that you need (e.g. $50,000), and then if necessary, use additional invoices in the future if more is required (e.g. another $50,000).

Is Accounts Receivable Financing Right for Your Business?

Accounts receivable financing may be a suitable funding solution for your business if you have a significant amount of money tied up in outstanding invoices, want or need rapid access to a lump sum of working capital, and want to focus on running your business vs. handling loan administration tasks.

Conversely, it may not be the right solution if you do not have sufficient outstanding invoices to cover all/most of your working capital needs, or if you do not have an immediate or short-term use for funds (in which case, applying for a business line of credit that you can draw down as needed may be a better option).  

Learn More or Apply for Accounts Receivable Financing

To learn more about accounts receivable financing, contact the National Business Capital team today by calling (877) 482-3008.

Or, apply today by filling out our 60-second online application start turning your invoices into cash in as little as 24 hours

We are here to serve you 24/7/365, and your consultations with us are always free, friendly and focused on what matters: helping you get the financing you need to keep your business strong and successful for years to come!  

Last Updated on September 11, 2017

National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.

Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.

From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure over $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.

About the Author, Joe Camberato

Joseph Camberato, CEO of National Business Capital, developed a passion for business at a young age. Joe started his company in 2007 in his spare bedroom and has grown to secure over $1 Billion dollars in financing for small business owners nationwide. National’s team has an amazing culture and has been name the #1 Top Workplace on Long Island 3 years in a row and counting. Joe is a trusted financial expert who’s published more than 2,000 articles in the last 3 years. His articles have generated over 5 million page views and has been featured on blogs such as Google News, Yahoo, CNBC, Forbes Magazine, etc. His passion has also inspired him to build the "GrowByJoe” YouTube channel where he shares his insights into small business trends and tips for growth. Joe also holds a seat on Forbes Finance Council and is an active member of the Young Presidents' Organization (YPO), a global leadership community.





Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.