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Accounts Receivable Financing

Loan Amount

90% Receivables

Loan Term

Up to 1 Year

Time to Funds

Interest Rate

As low as 2%

What is Accounts Receivable Financing and How Does it Actually Work?

In a perfect world, your customers would pay you up front for any product or service they were even thinking about purchasing. Unfortunately, that’s not the world we live in. If you’re like many small business owners, you might find yourself regularly chasing after unpaid invoices so that you can pay your own bills at the end of each month. It’s a waste of time and capital when your hard work is tied up in accounts receivable, which is why it could be a good idea to turn to accounts receivable financing.

With accounts receivable financing, also referred to invoice factoring, a lender buys your business’s outstanding invoices and fronts you 90% of the balance. You can use the funds for anything you need, but they’re typically used as a source of general working capital to keep your business running smoothly. Your customer then pays the lender, who will deduct the relevant fees based on how long the payment took and then send the remaining balance to you.

How can small business owners benefit from accounts receivable financing?

Accounts receivable financing doesn’t offer you a source of additional money. Instead, it allows you to tap into money that you’ve already earned before you customer gets around to paying you. In some cases, the biggest and most reliable customers a small business has could be the slowest to pay—particularly if the customer is a corporation or public sector entity with a large accounting department that each invoice must move through. In these situations, accounts receivable financing can be a great way to boost working capital reserves at a reasonable cost.

Is accounts receivable financing a good idea? Sure, if:

  • Your customers are consistent with their payments.
  • You can invest the money back into your business and reap a return higher than the interest rate you’ll be charged.
  • You price the cost of accounts receivable financing into your services to preserve your profit margins.

Maybe you bid on a government contract and anticipated a lengthy delay between completing the work each month and getting a paycheck, so you increased your margin to accommodate the price of accounts receivable financing. Or maybe you typically wait patiently for a few slow customers to pay their invoices, but you need the money quickly to make a down payment on a commercial mortgage or a business acquisition loan. In these situations, accounts receivable financing can be an excellent way to put your earnings to work without delay.

Can accounts receivable financing be a bad idea? Absolutely, if:

  • You’re not sure if you can depend on your customers to pay outstanding invoices.
  • You need access to an additional injection of capital for a substantial purchase, making a Business Term Loan, a Commercial Mortgage, or a Business Line of Credit a better option depending on your need.
  • Your margins are too thin to justify the additional expense of accounts receivable financing.
  • You don’t want your customers to know that you’re financing their open invoices.

Say you completed a large amount of work for a new customer, but it’s been a few weeks and they haven’t paid the invoice or even acknowledged that they’ve received it. In this situation, financing the open invoice is a gamble, because it’s going to cost YOU if they don’t pay the lender or pay much later than expected. In addition, the age of the invoice will prompt the lender to charge a higher rate because of the risk. Instead of accounts receivable financing, you’ll want to explore a few other ways of getting your money when a customer won’t pay a bill.

Qualifications for accounts receivable funding

Annual Revenue

over $125,000

Minimum Credit Score


Time in Business

12 Months

How to qualify for accounts receivable financing

Qualifying for accounts receivable financing is relatively easy. Because your outstanding invoices can serve as collateral, you’ll simply need a minimum credit score of 500 and annual revenue that exceeds $125,000, provided you’ve been in business for at least a year.

We’ll also look at the age of invoices, because older outstanding balances are less likely to be paid. If you know a customer normally takes longer than you would like to pay an invoice, it’s a smart idea to look at accounts receivable financing as soon as you’ve sent the invoice. This proactive approach will ensure you get the money you need as quickly as possible and at the lowest possible rate.

Pros and cons of accounts receivable financing.

Turning your outstanding invoices into usable capital could be a good idea. Before you borrow, however, you should weigh the following pros and cons carefully:


  • Accounts receivable financing offers quick access to capital, putting money in your account in as few as 24 hours once you’ve been approved.
  • Accounts receivable financing is unsecured, meaning you don’t have to put up assets as collateral.
  • It’s easy to get approved for accounts receivable financing compared to other popular small business financing options.


  • Accounts receivable financing can be expensive if repayment takes longer than expected.
  • You’re relying on your customers to pay outstanding invoices, which means their financial troubles could flow downstream and negatively impact your business.
  • Accounts receivable financing requires a business track record of at least a year.

Our take on accounts receivable financing

Is accounts receivable financing a good option for your business? That decision is up to you, but here’s our take: For outstanding invoices with customers who have a proven history of reliably (albeit slowly) making payments, accounts receivable financing can help put cash you’ve already earned back into your business. Instead of waiting months for a customer to pay, you could purchase a much-needed business vehicle, make a critical hire, or even just pay down a more expensive form of financing such as a high-interest business credit card to save money in the long run.

If you want to know what other financing options might be available to your business, Lendesca can help. Fill out our easy application and we’ll use your answers to match you with our most attractive financing options. Get your business growing today!