What Is Accounts Receivable Financing?
For businesses with commercial clients, there's often a frustrating gap between when work is completed and when the invoice gets paid. 30, 60, sometimes 90-day payment terms are standard in many industries. In the meantime, payroll, materials, and overhead keep coming due.
Accounts receivable financing bridges that gap by converting outstanding invoices into immediate cash.
How AR Financing Works
There are two primary structures for AR financing: invoice factoring and AR-based lines of credit.
Invoice factoring: You sell your invoices to a factoring company at a discount. They advance you 80 to 90% of the invoice value immediately and collect payment from your client directly. When the client pays, the factor remits the remaining balance minus their fee.
AR line of credit: A revolving credit facility secured by your receivables. You retain control of collections, your clients pay you, and you use the line as needed. This is typically available through banks or ABL lenders and is more cost-effective at scale than factoring.
Who It Works Best For
- B2B companies with commercial or government clients on net 30 to 90 terms
- Staffing, trucking, construction, and government contracting firms
- Businesses with strong receivables but tight cash flow
- Companies that can't qualify for conventional credit but have creditworthy clients
The Key Distinction: Your Client's Credit, Not Yours
In factoring and AR financing, lenders are largely underwriting your clients, not you. If your clients are creditworthy commercial entities or government agencies, you can often qualify for AR financing even with a limited credit history or weak personal financials. The quality of the receivable is what matters most.
Cost Structure
Factoring fees are typically 1 to 5% of the invoice value per month, depending on invoice volume, client creditworthiness, and advance rate. On a $100,000 invoice paid in 30 days, that's $1,000 to $5,000. Compared to the cost of missing payroll or turning down a contract, the math often works out.
When to Consider AR Financing
AR financing is the right tool when your primary working capital problem is timing, you're doing the work, billing for it, and waiting to get paid. It's not the right solution for businesses with cash flow problems driven by low margins or insufficient revenue. Know which problem you're solving before committing to the cost.
Educational content only, not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not, and must not be construed as, financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.