Accounts Receivable Financing 101: The Process and Key Benefits

Last Updated on January 8, 2018

Accounts receivable financing is a way for businesses to use pending customer payments as collateral for an advance of funds. While lender policies vary, generally businesses can expect to receive around 75-85 percent of the value of their receivables (more on this below).  

accounts receivable financing

The Accounts Receivable Financing Process

    • Application: the borrower applies to a lender that offers accounts receivable financing.  
    • Due Diligence: the lender conducts due diligence to assess whether and to what extent it will advance funds, based on a borrower’s background and overall financial profile.
    • Sending Receivables: once a borrower’s application is approved and an account is setup, the borrower submits receivables for assessment (this typically includes invoices along with a schedule of accounts, and are sent electronically via secure email).  
    • Assessing Receivables: the lender assesses the receivables and determines how much cash it will advance (as noted above, this is often 75-85 percent of the total pending amount).
    • Acceptance and Advance: if the proposed amount is accepted, it is advanced to the borrower electronically — typically within hours, or by the end of the next business day.  
    • Receiving Payment: customers pay invoices as per normal, but instead of sending them to the borrower, they are sent to a “locked box.” This allows lenders to legally receive payments on the borrower’s behalf. Customers may also pay invoices electronically, which are send to special account that the lender can access.
    • Settlement: once payment is received, the lender marks invoices as paid and remits the amount that was initially held back (e.g. 25-15 percent of an invoice), less the agreed-upon financing fee.  

Key Benefits of AR Funding

There are three key benefits of accounts receivable financing that make it a popular funding option:

  1. A business is paid right away vs. months in the future.
  2. The funds can be used for any purpose.
  3. A business does not have to spend time or money on delinquent customers. Lenders assume all potential non-payment risks, and are responsible for any collections activities and costs.

One-Time or Ongoing

Businesses can take advantage of accounts receivable financing on a one-time basis, or they can setup an ongoing process. For the latter, they simply submit invoices to the lender for verification, assessment, advance and settlement.

Learn More

To learn more about whether accounts receivable financing is right for your business’s funding needs and goals, contact the National Business Capital & Services team today. Your consultation with us is free.
Or, if you’re ready to get started then simply complete our streamlined and secure online application. Our professional and friendly funding specialists will be in touch within 24 hours.

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About the Author, Megan Capobianco

Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital & Services and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.