Quick answer: Accounts receivable financing lets businesses turn outstanding B2B invoices into immediate cash. Instead of waiting 30, 60, or 90 days for customers to pay, the business submits invoices to a lender who advances 70–90% of the face value right away. When the customer pays, the lender remits the remaining balance minus fees. Two main structures: factoring (sell the invoices, lender collects) and asset-based lending (invoices as collateral, business collects). Typical fees are 1–5% per 30-day period for factoring; ABL is typically priced on a drawn-balance rate.
Last updated: May 2026
Commercial Finance Education
Accounts receivable financing solves one of the most common cash flow problems in B2B business: the gap between delivering goods or services and getting paid for them. A staffing company that places workers this week but does not get paid for 45 days, a manufacturer that ships product to a large retailer on net-60 terms, a trucking company waiting on freight bills — all of these businesses have real receivables but a real cash crunch. AR financing converts those future payments into present cash. This guide explains exactly how it works, how it is structured, what it costs, and how referral partners can identify candidates.
Accounts receivable financing is a form of asset-based business financing in which a company uses its outstanding invoices — money owed by customers for goods or services already delivered — as the basis for accessing capital. Instead of waiting for customers to pay on their standard payment terms (which can be 30, 60, or even 90 days), the business receives an advance from a lender against those invoices, typically within 24 to 72 hours of verification.
The fundamental logic is straightforward: the money is real, it is just in the future. AR financing moves that future payment into the present in exchange for a fee. The lender takes on the risk (or a portion of it) that the customer will pay, and the business gets cash now to fund operations, payroll, inventory, or growth.
AR financing is specifically designed for B2B businesses — businesses that invoice other businesses or government entities for products or services rendered. It does not work for consumer-facing businesses (retail, restaurants, e-commerce that sells to consumers) because consumer receivables are a different risk profile and legal structure. A manufacturer that invoices a distributor on net-60 terms qualifies. A restaurant that serves individual diners does not.
The receivables are the collateral in this type of financing. This means that a business with weaker personal credit or limited physical assets can still access AR financing if it has strong, creditworthy customers and clean invoices. The lender is underwriting the quality of the receivables and the creditworthiness of the customers — not just the business itself.
While specific processes vary by lender and structure, the general flow of AR financing follows a consistent sequence:
The business submits outstanding invoices to the lender. These represent money owed by customers for goods or services already delivered. The business typically submits an accounts receivable aging report along with copies of the invoices and supporting documentation (purchase orders, delivery receipts, contracts).
The lender verifies the invoices — confirming that the goods or services were delivered, that the invoices are legitimate and not disputed, and that the customers are real businesses. The lender also evaluates the creditworthiness of the customers who owe the money. This step is critical: the advance rate and eligibility determination depends heavily on customer quality.
Once verified, the lender advances 70–90% of the face value of eligible invoices to the business, typically via ACH wire to the business bank account. This can happen within 24–72 hours of submitting complete documentation for established relationships; the initial setup may take longer.
In factoring arrangements, the lender notifies the customer that payment should be directed to the lender's lockbox or payment address. The customer pays the lender directly when the invoice is due. In ABL arrangements, the business continues to collect from customers and remits funds to the lender as part of the revolving facility management.
When the customer pays in full, the lender remits the remaining balance — the "reserve," which is the portion of the invoice not advanced (10–30%) — minus the factoring fee. If a $100,000 invoice was advanced at 85% ($85,000) and the factoring fee is 2% for the 45-day period, the business receives $85,000 at advance and $13,000 ($100,000 - $85,000 - $2,000) when the customer pays.
AR financing is not a single product — it encompasses several distinct structures with different characteristics, costs, and use cases. Referral partners should understand the key differences to route deals correctly.
| Structure | How it works | Who collects | Best for | Typical cost |
|---|---|---|---|---|
| Invoice factoring | Business sells invoices to factor; factor advances a percentage and collects from customers | Factor (lender) | Businesses with consistent invoice volume that want to outsource collections; smaller-to-mid-size businesses | 1–5% per 30-day period |
| Asset-based lending (ABL) | Revolving credit facility secured by receivables; business draws against the facility as needed and remits as customers pay | Business | Larger businesses (typically $1M+ in annual revenue) that want to maintain direct customer relationships and have credit staff to manage collections | Prime + 2–5% on drawn balance |
| Spot factoring | Business factors individual invoices on a one-off basis rather than committing to a full facility | Factor (lender) | Businesses with occasional large invoices or one-time capital needs; businesses not ready for a full factoring facility | Higher per-invoice fee (3–6%+) due to lower volume |
For referral purposes, the most important distinction is factoring vs. ABL. Factoring is the more accessible entry point — it can be set up relatively quickly, does not require a strong business credit profile, and is available to smaller businesses. ABL typically requires a larger facility size and more sophisticated financial reporting, but it is less expensive over time because the business retains control of collections and the facility is priced on a drawn-balance basis.
Most clients that referral partners send are factoring candidates. ABL candidates are typically businesses with $2 million or more in annual revenue and a finance team that can manage the reporting requirements.
The advance rate — the percentage of invoice face value the lender will advance — is one of the most important economics of AR financing. Lenders typically advance 70–90% of eligible invoice value, but where a specific deal lands in that range depends on several factors:
Pricing for AR financing varies significantly by structure and deal characteristics. Understanding the fee components helps referral partners set appropriate client expectations and evaluate whether the cost makes sense for a specific situation.
| Fee type | Factoring | ABL |
|---|---|---|
| Primary rate | 1–5% per 30-day period (sometimes quoted as a weekly rate, e.g., 0.5–1.5% per week) | Prime rate + 2–5% annually on drawn balance |
| Origination / setup fee | 0.5–2% of facility size (one-time) | 0.5–1.5% of facility commitment (one-time) |
| Minimum monthly fee | Some factors require minimum monthly volume (e.g., $500–$2,000/month minimum fee) | Unused line fee of 0.25–0.5% annually on undrawn commitment |
| Wire / ACH fee | $15–$35 per wire or ACH | $15–$35 per transaction |
| Audit fee | Not typical | $1,500–$5,000 per annual field audit |
To put factoring fees in context: a 2% per-30-day fee on a $100,000 invoice that is paid after 45 days works out to roughly 3% of the invoice value. On an annualized basis, that is a high effective rate — comparable to or more expensive than a merchant cash advance for shorter-duration invoices. However, for the business, the comparison is not to the cost of a bank loan; it is to the cost of not having the cash. A staffing company that needs $200,000 to make payroll this week because customers pay in 45 days does not have a "cheaper" option — the alternative is missing payroll or turning away new contracts.
ABL facilities are less expensive than factoring on a rate basis, but they have more overhead (field audits, reporting requirements, minimum facility sizes) that make them unsuitable for smaller businesses. For businesses with $5 million or more in annual receivables and the infrastructure to manage an ABL facility, the economics are significantly better than factoring.
One of the most important structural questions in factoring is who bears the credit risk — the risk that the customer simply does not pay the invoice. The answer determines whether the arrangement is "recourse" or "non-recourse."
Recourse factoring is the dominant structure in the US commercial market. In a recourse arrangement, if the business's customer does not pay the invoice — because the customer went bankrupt, became insolvent, or otherwise failed to pay — the business (the seller of the invoices) is required to buy back those invoices or replace them with other eligible invoices. The factor advanced real money against those invoices and expects to be made whole; the credit risk stays with the business.
Most recourse factoring arrangements have a "charge-back period" — typically 90 days from invoice date. If the invoice is not paid within that period, the factor charges it back to the business. This means the business needs to monitor its customer payment performance and address slow-paying customers quickly.
Non-recourse factoring shifts the credit risk to the factor. If the customer does not pay because of its own financial failure (insolvency, bankruptcy), the factor absorbs the loss and does not charge it back to the business. Non-recourse factoring is more expensive — the factor is assuming more risk and prices accordingly. It is also more limited: non-recourse protection typically covers only credit risk (the customer's inability to pay), not disputes, chargebacks, or situations where the customer disputes the validity of the invoice. If your customer disputes whether you delivered the goods correctly, that dispute is almost always charged back regardless of whether the arrangement is recourse or non-recourse.
For referral purposes: most clients who ask about non-recourse factoring are concerned about customer credit risk. In practice, for businesses with large, creditworthy customers (Fortune 500, government), the risk of customer insolvency is low enough that recourse factoring at lower rates usually makes more sense than non-recourse at higher rates.
AR financing is not limited to specific industries, but certain industries use it far more commonly than others — typically because their business model creates a structural gap between service delivery and payment receipt:
Staffing companies pay workers weekly but bill clients on net-30 or net-45 terms. The cash gap between payroll and collections is structural — it exists in every pay period for every client. Factoring is extremely common in staffing because the receivables are clean, the customers are typically creditworthy businesses, and the invoicing is straightforward and verifiable.
Manufacturers ship product on commercial credit terms (net-30 to net-60) and need to fund production costs — materials, labor, overhead — before receiving payment. AR financing bridges the production-to-payment gap. Large manufacturers often use ABL facilities; smaller manufacturers may use factoring.
Distributors purchase inventory, sell to customers on credit terms, and must fund the inventory cost before collecting from customers. Working capital tied up in inventory and receivables simultaneously makes AR financing a natural fit. Many distributors use an ABL facility that advances against both receivables and inventory.
Freight carriers deliver loads and issue freight bills that are paid on net-30 to net-60 terms by shippers and brokers. Fuel, driver pay, and maintenance costs are immediate; payment is not. Factoring freight bills is an industry norm — specialized freight factors exist and are widely used throughout the trucking industry.
Healthcare businesses that bill insurance carriers, Medicare, or Medicaid have highly predictable receivables but slow collection cycles — insurance payment can take 45–90+ days. Specialized healthcare factors and ABL lenders handle these receivables. The eligibility and advance rates depend on the payer mix, claim accuracy, and billing practices.
Consulting firms, IT service companies, marketing agencies, and other professional services businesses that invoice corporate clients on net-30 terms can use AR financing to smooth cash flow. Eligibility is strong when customers are creditworthy corporations; it weakens when customers are smaller businesses or the invoices represent ongoing retainer arrangements where scope disputes are common.
Not all receivables qualify for AR financing. The basic eligibility criteria are consistent across most lenders, though specific thresholds vary:
| Criterion | Eligible | Not eligible |
|---|---|---|
| Invoice type | B2B invoices for goods or services already delivered | Consumer receivables; progress billings where work is not yet complete; pre-billings |
| Customer type | Creditworthy business entities; government agencies | Consumers; related parties; customers who are themselves financially distressed |
| Invoice age | Current invoices (under 60–90 days from invoice date) | Invoices over 90 days; invoices past due by more than 30–60 days beyond payment terms |
| Dispute status | Clean, undisputed invoices | Invoices with active disputes, offsets, or contra accounts |
| Existing liens | Receivables with no prior pledge to another lender | Receivables already pledged as collateral to a bank or other lender |
| Customer concentration | Diversified customer base (no single customer over 20–25% of total AR) | Single customer represents 40%+ of receivables (concentration limits apply) |
Understanding decline reasons helps referral partners pre-screen clients and set accurate expectations before submitting a deal. Common AR financing decline reasons:
A deal declined by one factor is not necessarily permanently ineligible. Different lenders have different concentration limits, industry appetites, and advance rate formulas. A deal with 35% concentration to one customer might be declined by one factor and approved with a concentration limit by another. Referral partners with a signed referral agreement can submit declined AR deals for a second-look evaluation.
For CPAs, loan brokers, equipment vendors, and consultants, the ability to recognize an AR financing candidate — and know that AR financing is the right solution — creates value for clients and generates referral income. Here are the clearest signals:
Submitting an AR financing deal for evaluation is straightforward once a referral agreement is in place. AR deals require more information than simpler working capital products, because the lender needs to evaluate the quality of the specific receivables, not just the business's overall revenue and credit profile.
Key information needed for an AR financing referral:
The referral partner reviews and signs the agreement with Axiant Partners before submitting any deals. This establishes the fee structure and the scope of the relationship.
Send the AR aging report, sample invoices, customer list, and financial summary via the referral form or directly by email, identifying yourself as the referring partner.
The finance partner evaluates the receivables, customer quality, concentration, and deal structure. Initial feedback is typically within 1–2 business days of receiving complete information.
If the deal is viable, a term sheet or facility proposal is presented to the client. The referral partner stays informed and can help the client understand the economics.
Once the client accepts terms, the facility is documented and funded. The referral fee is paid per the referral agreement — typically within 30 days of the facility funding date.
FAQ
The business submits outstanding B2B invoices. The lender verifies them and evaluates customer creditworthiness. The lender advances 70–90% of eligible invoice value, typically within 24–72 hours. The business's customers pay the lender (in factoring) or the business remits collections to the lender (in ABL). When customers pay, the lender releases the reserve minus fees. The fee is typically 1–5% per 30-day period for factoring.
Factoring involves selling invoices to a factor, which takes over collection responsibility and contacts your customers directly. ABL uses receivables as collateral for a revolving facility while the business retains collection responsibility. Factoring is accessible to smaller businesses; ABL is more cost-effective for larger volumes but has more reporting overhead.
Advance rates typically range from 70% to 90% of eligible invoice face value. Higher rates go to businesses with creditworthy, concentrated-but-diverse customer bases and clean invoice aging. Lower rates apply to deals with customer concentration risk, older invoices, or industries with high dispute rates.
In recourse factoring, if a customer does not pay the invoice, the business must buy it back from the factor. In non-recourse factoring, the factor absorbs the loss if the customer cannot pay due to insolvency. Non-recourse is more expensive and does not cover invoice disputes — only customer credit failures. Most US factoring is recourse.
B2B businesses with genuine commercial invoices for delivered goods or services — staffing, manufacturing, distribution, trucking, healthcare, professional services. The invoices must represent real delivered value, the customers must be creditworthy business entities, and the receivables must not be pledged to another lender.
Common decline reasons: receivables already pledged to a bank; consumer receivables (not B2B); too-high customer concentration; invoice age over 90 days; widespread disputes or high dilution. A deal declined by one factor may qualify elsewhere. Referral partners can submit declined AR deals for a second-look evaluation through a signed referral agreement.
Have a client with outstanding invoices and a cash need?
Referral partners with a signed agreement can submit AR deals — factoring, ABL, or spot factoring — for evaluation. We respond within one business day. Include the AR aging report, sample invoices, and a brief description of the financing need.
