Receivable Financing for Streamlining Cashflow
in Small Businesses
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Business owners across the globe rely on accounts receivable financing (AR financing) to manage their cashflow. This is especially true for business-to-business (B2B) businesses that finalize business deals where goods are to be delivered in advance without receiving any payments. Such type of transactions is mostly done considering the reputation and trustworthiness of the client and helps close large ticket deals and secure high value clients. However, until the payment arrives, businesses look for multiple financing options and lenders who can provide short-term loan against their pending invoices.
With the loan amount, businesses are able to continue their operations without any delays. They can invest in more working capital, pay salaries, utility bills, and use the funds for business promotions and growth. The liquidity that receivable funding provides helps business stay resilient and outperform competition in time sensitive markets.
What is Receivable Financing?
Accounts Receivable financing is a type of financing that provides businesses the required monetary funds against their outstanding invoices. It helps them cover essential business costs such as processing costs, capital costs, inventory costs, and stabilizes their cash flow until the actual profit arrives. It helps them ensure that the business isn't left decapitated after a bulk order, whose payment will be processed in the next 3-6 months or as stated in the contract.
One example of receivable financing is a medical equipment supplier providing hundreds of stretchers to a hospital on a short notice, with a payment term of 90 days. The supplier will deliver the stretchers on time, but this will lead to unpaid invoices and inventory shortages for the supplier. With medical receivables financing, the supplier would be able to restock stretchers, conduct payroll, and continue other operations as per business needs without interruption.
The receivable financing market is also large, valued at $164.06 billion in 2025 and growing 11-12% annually. This proves receivable financing to be a viable and widely trusted financing option for which thousands of businesses already opt each year.
Benefits of Receivable Financing
Receivable loans for small businesses and medium-sized businesses bring multiple benefits. From ensuring efficient cash flow to helping secure big clients, AR financing can be an optimal strategy for conducting limitless business growth.
01 Fixes Cashflow and Liquidity Problems
Bulk orders often a have long payment terms, usually ranging from 30 days to 180 days. During this waiting period, the business can encounter multiple cashflow problems. These can be related to paying utility bills, salaries, or even manufacturers for restocking the depleted inventory. By eliminating the waiting period and providing an early payment, receivable financing helps manage cash flow and liquidity.
02 Possibly No Hard Credit Pull
In business loans, lenders often need to conduct a hard credit pull to check the business owner's credit score for establishing creditworthiness. However, in some receivable financing options, such as invoice factoring, no hard credit pulls, or the company's balance sheet check is involved. The entire process only includes addressing the business liabilities by securing funds against outstanding invoices.
03 No Collateral Required
Receivable financing is one of those funding options that do not require the business owner to keep any collateral, such as working capital or home equity, as to secure the loan. As the order is already delivered, the invoice itself acts security against the loan while also safeguarding the current assets of the business owner.
04 Does Not Add up as Debt
Unlike traditional business loans and line of credit, accounts receivable factoring does not add up to your existing debt. Meaning, your debt-to-income ratio remains controlled. You remain eligible for other business loans and funding options as well. This safeguards your future against other types of economic uncertainties.
05 Quick Application Process
Receivable financing works fast. With proper invoices and a reliable client, you can apply for receivable financing quickly at multiple lenders.
06 Scale to Any Volume
With business growth, your sales orders will increase, requiring you to take receivable financing for multiple orders or for large sales figures. Instead of waiting for each invoice to be cleared, you can get upfront payment that scales with your sales, easily with AR financing.
07 Helps Secure Big Ticket Clients
Large and reputed clients are already difficult to secure but help businesses gain a name in the industry. They act as strong social proofing to attract future leads and prospects. However, with the fear of delayed payments, business owners cancel the deal. With accounts receivable financing, they can secure the deal hassle-free.
Types of Receivable Financing
Receivable financing is very different from other commercial lending options where financing solutions majorly rely on your credit score and business plan. Also, not all financial institutions offer all types of receivable financing. If you are interested and think receivable financing can help with your business operations, you can opt for the following options.
Invoice Financing
As the name suggests, in invoice financing, you take loan from a lender by keeping your invoice as a security against the loan. Lenders and financial institutions carefully evaluate your outstanding invoices to verify the details and offer to provide you receivables loan at lower costs in terms of APR and interest rates.
Invoice Factoring or Accounts Receivable Factoring
Not to be confused with invoice financing, in this type of receivables financing, business owners directly sell the invoice to money lenders at a discounted rate. In return, they get early payment for the orders fulfilled, and the lenders get to collect the entire amount on the invoice as per the agreed upon payment terms.
Invoice Discounting
Invoice discounting also includes selling the outstanding invoicing to lenders at a discounted price, but instead of the client paying back to the lender, the business owner receives the payment. At the end, it is the business owner who pays back to the lender, who checks in as accounts payable.
Invoice Financing vs Invoice Factoring
Many business owners confuse between invoice financing and invoice factoring. While both sound similar, they vary in multiple aspects.
- In invoice financing, the business owners take loan against outstanding invoices. On the other hand, in invoice factoring, they directly sell the invoice to financial institutions and collect payment
- The collection process in both these receivable financing options vary. While in invoice financing, the business owner still remains responsible for collecting payment from the client, in invoice factoring, the collection process becomes a responsibility of the lender who has to chase client for payment.
- In invoice financing, money lenders still evaluate your credit score but in factoring, it is not a primary approval document.
Alternative Financing Options to Receivable Financing
While receivable financing remains a feasible option for many businesses, they can also opt for other financing solutions.
Inventory Financing
In inventory financing, small businesses take loans at a fixed interest rate and repayment duration to resolve their understocking problems. Inventory financing is useful when the inventory shortages are high and there are no outstanding invoices available to opt for receivable financing option.
Supply Chain Financing
Supply chain financing establishes an entire system of AR financing between financial institutions and small businesses. Instead of manually applying for receivable financing for every invoice, the system may pre-qualify invoices for financing and help streamline cashflow.
SBA 504 Loan
In case, there are no outstanding invoices, and you still require a loan for daily business operations, you can opt for the US Small Business Administration 504 loan. For qualified small businesses, SBA 504 loan means quick access to funds up to $50,000 with SBA's backing.
Line of Credit
Multiple financial institutions issue a line of credit for multiple businesses. As an alternative to receivable financing, line of credit also offers easy application process with many businesses prequalifying for the loan. Also, they only need to pay interest on the amount drawn instead on the entire credit line.
Revenue-Based Financing
Another financing option for small businesses is revenue-based financing. In this type of funding, businesses provide a small percentage of share in monthly gross returns for repayment. This means, you only pay as much as your business grows, ensuring scalability for long-term.
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FAQs about Receivable Financing
1. What is receivable financing?
Receivables financing refers to when to maintain cashflow, businesses take loans against their outstanding invoices. Once these businesses receive the invoice payment, they repay the loan amount to the lender at a pre-decided interest rate.
2. What are the key benefits of applying for receivable financing?
Receivable financing has several benefits for both small and medium-sized businesses. First, it lets them secure high value clients without the fear of delayed payments. Second, quick cash means business owners can restock inventory in time, conduct payroll, and even pay utility bills. The accounts receivable factoring option also does not require business owners to submit any collateral, nor it includes any credit score inquiry.
3. What is invoice financing? How does it differ from invoice factoring?
Invoice financing includes directly taking a loan from banks or financial institutions against pending invoice. It differs from invoice factoring, which includes selling the invoices to the lenders. Also, the responsibility of financing amount collection changes from the business to money lender in invoice factoring, whereas in financing, the business still needs to collect the payment.
4. Why take invoice loan for small businesses?
Invoice loan for small businesses can provide them with immediate cashflow to continue business operations, such as purchasing inventory, conduct payroll, and re-invest in growth and marketing. It also does not require the business owner to submit any collateral, making invoice loans a reliable financing option for startups and small businesses.
5. Should I take line of credit?
Business owners can take loans from their eligible line of credit. Just like receivable financing, line of credit also does not require businesses to keep any collaterals for securing the loan. Moreover, the interest rate is only applied on the actual amount that you withdraw instead of the fully eligible credit line.
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