Capital advanced against
invoices already in the mail.

Accounts receivable financing is an umbrella term covering two related-but-distinct working capital structures: invoice factoring and invoice financing (sometimes called invoice discounting). Both turn outstanding receivables into immediate cash. The mechanics, customer-relationship implications, and contract structures are different enough that operators should understand the distinction before choosing.

Invoice factoring is a sale of the invoice. The factor purchases the receivable from you, advances 80–95% of the face value upfront, and takes over collection from your customer. When the customer pays the invoice — usually directly to a lockbox or account controlled by the factor — the factor deducts their fee and releases the remaining balance (the reserve) to you. Your customer knows the factor is involved; the assignment is typically noticed, and payments go to the factor's address. The customer relationship is, in a real sense, three-way: you provide the goods or services, the factor manages the receivable, and the customer pays the factor.

How invoice financing differs

Invoice financing is a loan against the invoice rather than a purchase of it. The lender advances you a percentage of the invoice face value as a secured loan, you continue collecting from your customer in your name as you always have, and you repay the loan when the customer pays you. The customer doesn't necessarily know a lender is involved — the relationship between you and the customer is unchanged. The lender holds a security interest in the receivable, typically via UCC filing, but the day-to-day operational mechanics look like a revolving line of credit secured by AR rather than a structural change to your billing operation. Invoice financing generally requires stronger underwriting on the borrower than factoring because the lender has less control over the collection process.

For most U.S. small businesses, factoring is the more common structure, and that's what 'AR financing' typically means in practice. Invoice financing tends to be available only to larger, more established borrowers — typically $5M+ in annual revenue with audited financials. The pricing reflects this: factoring is more expensive per dollar advanced but available to smaller, earlier-stage operators; invoice financing is cheaper per dollar but requires more underwriting and a stronger borrower profile.

The economics of AR financing are governed by three numbers: the advance rate, the reserve, and the fee schedule. On a $100,000 invoice with a 90% advance rate, the factor wires you $90,000 immediately upon verification. The remaining $10,000 is held in a reserve account. When your customer pays the invoice in full, the factor deducts the accumulated fee from the reserve and releases the remainder to you. If the customer pays late, the fee accumulates by time period; if the customer underpays or disputes, the reserve absorbs the difference up to its value.

Fees are typically quoted as a percentage of face value, charged per 30-day period the invoice is outstanding. A standard schedule might be 1.5% for the first 30 days, plus 0.5% for each additional 15-day period. An invoice paid in 25 days costs 1.5% of face value. An invoice paid in 50 days costs 2.0%. An invoice paid in 75 days costs 2.5%. Translated to effective APR, factoring fees on a typical 45-day average days-sales-outstanding portfolio run roughly 15–30% APR. That's more expensive than bank debt but materially cheaper than most MCA pricing.

Recourse versus non-recourse

Recourse factoring places the credit risk on you, the seller. If your customer doesn't pay within an agreed window (typically 90 days past due), the factor charges back the advance and you owe the money. This is the default structure for most U.S. factoring relationships. Non-recourse factoring shifts the credit risk to the factor — if the customer doesn't pay due to insolvency, the factor absorbs the loss. Non-recourse sounds attractive but costs 1–2% more in fees and typically excludes non-payment caused by disputes, returns, or quality issues — those remain the seller's responsibility. For most operators, recourse factoring with optional credit insurance on specific large account debtors is the more cost-effective structure.

Who AR financing fits cleanly

The product is built for B2B businesses with predictable invoicing patterns and creditworthy customers. Staffing agencies are the archetype — they invoice client companies weekly for placed workers, get paid net 30–45, and have an immediate weekly payroll obligation that doesn't wait for the invoice to mature. Commercial trucking invoices freight brokers per load and gets paid net 30–60 while fuel, drivers, and maintenance need to be paid now. Wholesale and distribution invoices retailers net 30–60. Commercial cleaning, janitorial, and security services invoice monthly. Commercial construction subcontractors invoice at milestones and wait 60–90 days for payment. In each case, the receivables exist, the customers are known and credit-checkable, and the payment lag creates working capital friction that factoring relieves immediately.