“Accounts Receivable financing” – also known as “invoice financing” – is an alternative to traditional bank loans. This is meant for companies without the standard expected collateral when looking for financing options. It allows companies to take their already existing invoices and leverage them in order to obtain the equivalent near-immediate cash payments. This translates to financial freedom instead of waiting through the usual invoice collection cycle. Due to this type of loan collateralizing invoices, it allows a more stress-free underwriting process because it focuses on the strength of your debtors in tandem with your own financial history. It’s no surprise that this type of loan has become increasingly popular over the years.

As an aside, it’s important not to confuse “Accounts Receivable financing” with “Accounts Receivable factoring”. Factoring is the process of selling your existing unpaid invoices to a prospective buyer at a reduced rate. What this means is that when you finance your AR, you will still be collecting the invoice from the client and then making your scheduled payments on the loan. But when you factor your AR, the factoring company will pay you for the invoice directly and then make collections themselves on the invoice.