Accounts Receivable Financing
A general category of working-capital facilities secured by, or structured as a sale of, a company's unpaid invoices. Includes factoring, AR lines of credit, and asset-based lending against receivables.
Two structural forms
Accounts receivable financing comes in two primary forms: a true sale of the receivables (factoring) and a loan or line of credit secured by the receivables (AR line or asset-based loan).
The right structure depends on covenant treatment, customer notification preferences, accounting treatment, and how the business reports receivables on its financial statements.
When it is the right tool
AR financing is most appropriate when a business has creditworthy commercial or institutional customers, predictable invoicing, and a working-capital gap created by extended payment terms.
It is rarely the right answer for businesses whose primary issue is margin compression or whose customer concentration is too narrow to support a borrowing base.
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