A/R Financing

A/R financing is a category of financing products where outstanding accounts receivable serve as the primary collateral or repayment source — including invoice factoring, asset-based lines secured by A/R, and invoice financing arrangements that advance against expected customer payments.

Why This Matters

A/R financing variants serve B2B businesses needing to accelerate cash flow on outstanding invoices. The two primary structures: factoring (sale of invoices to a factor) and A/R lending (loan secured by A/R as collateral). Factoring transfers invoice ownership and collection responsibility to the factor; A/R lending keeps invoices in the borrower's name with collateral pledge. Costs run 1-5% per month equivalent (12-60% annualized) for factoring and 6-15% APR for A/R secured lending. A/R financing is a fundamentally different product from MCA — repayment comes from underlying customer payments rather than merchant revenue.

Example

Service business has $400K in outstanding receivables, 45-day average payment cycle. A/R financing facility advances 85% of qualified A/R = $340K available capital. As customers pay invoices, the financier collects payment (in factoring) or borrower repays advance (in lending). Cost: roughly 2% per 30-day cycle = $6,800 monthly cost on average.

Frequently Asked Questions

Frequently Asked Questions

Is A/R financing the same as factoring?

Factoring is one type of A/R financing — specifically the sale of invoices to a third party. A/R financing also includes lending products secured by A/R as collateral without sale of the underlying invoices. Both leverage receivables for cash flow but differ in structure and customer relationship handling.

When does A/R financing beat MCA for B2B businesses?

A/R financing typically beats MCA on cost when the business has clean A/R aging (most invoices less than 60 days outstanding) and creditworthy customers. MCA wins on speed and minimal documentation. The right choice depends on business operating model and capital deployment needs.

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