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Accounts receivable financing A/R financing
Also called AR financing, receivables financing, invoice financing.
Borrowing against unpaid invoices while keeping ownership of them, as distinct from factoring, which sells the invoices outright.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
In A/R financing the invoices stay yours. The lender takes a security interest in them, lends a percentage of eligible balances, and you keep collecting from your customers as normal. Payments usually route to a controlled account, the line pays down as invoices are collected, and new invoices restore availability.
In factoring, by contrast, the invoices are sold. The factor becomes the owner of the receivable, usually notifies the debtor with a notice of assignment, and collects directly. Both products advance money against the same asset; the legal structure, the customer experience and the accounting differ.
Pricing is normally a rate on the outstanding balance plus a facility or servicing fee, rather than a flat discount per invoice. Because the borrowing base recalculates as invoices age out and new ones are raised, availability moves week to week and can fall even when the ledger looks healthy, if the aging deteriorates.
This sits between factoring and a full asset-based line. A/R financing typically requires better reporting discipline than factoring and a cleaner ledger, and rewards it with lower cost and no customer contact.
Where this one catches people
The words are used loosely. Plenty of providers market factoring as invoice financing because it sounds less like selling your customer list. The test is ownership and notification: if the funder buys the invoice and can notify your customer to pay them directly, it is factoring, whatever the brochure says.
Worked through
A borrowing base certificate lists 300,000 in receivables, of which 40,000 is over the eligibility age and 25,000 is to a related entity. Eligible collateral is 235,000. At an 80 percent advance rate, availability is 188,000; if 150,000 is already drawn, 38,000 remains to draw.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Accounts receivable financing — common questions
What does accounts receivable financing mean?
Borrowing against unpaid invoices while keeping ownership of them, as distinct from factoring, which sells the invoices outright.
Where does accounts receivable financing catch people out?
The words are used loosely. Plenty of providers market factoring as invoice financing because it sounds less like selling your customer list. The test is ownership and notification: if the funder buys the invoice and can notify your customer to pay them directly, it is factoring, whatever the brochure says.
Is accounts receivable financing the same as an interest rate?
Accounts receivable financing is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does accounts receivable financing apply to?
Working Capital, Business Line of Credit, Invoice Financing, Asset-Based Lending.
Is there a worked example of accounts receivable financing?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside accounts receivable financing?
Accounts receivable, Advance rate, Borrowing base, Invoice factoring, Notice of assignment.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.