Accounts Receivable Financing

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Accounts receivable financing – also known as “factoring” – is one of the most historically popular ways for a small business to maintain cash flow at critical times. It’s essentially the sale of outstanding invoices (future “receivables”) at a discount in order to secure a portion of that money immediately. The company purchasing the invoices (or loaning money against them) – generally referred to as “the factor” – provides funding in exchange for a cut of the total owed.

The most common type of factoring is the “asset sale.” In this arrangement, the factor actually purchases the invoices and takes on primary responsibility for collection. Because outstanding invoices are considered an “asset” for accounting purposes, this is an actual sale rather than a traditional loan. (Accounts receivable are classified as “liquid assets,” meaning they’re fairly easy to convert into usable cash.) The original terms of the invoice, such as due dates, total amounts, late fees, etc., remain fixed, so the factor must abide by them. If the party at the other end of that invoice refuses or is unable to pay, however, the factor has full legal claim to pursue the total due through collections or legal action.

An asset sale is similar to (but different than) a loan which uses a company’s accounts receivable (AR) as collateral. In this arrangement, loan terms may be more traditional but repayment is guaranteed by the asset of the outstanding invoices in question. If the company taking out the loan is unwilling or unable to pay, the accounts receivable factoring companies may take over the company’s AR in order to regain its investment. Whereas an asset sale is not technically a loan, this agreement is actual accounts receivable lending.

Because so much depends on the reliability of those responsible for paying the various invoices involved, factors may require some documentation regarding their credit histories as well as the company from which they’re purchasing AR or to which they’re extending credit using AR as collateral. It also matters what sorts of terms the invoices carry. It’s easier for factors to extend financing on AR due in 30 or 60 days than those allowing 180 days or more to pay.

The precise terms of any given accounts receivable funding agreement depend on the specifics of the situation and negotiations between the parties involved. Generally, however, the factor provides 70% - 80% of the total AR amount up front, keeping the rest in a reserve account until most or all of the invoices are paid in full. At that point, they deduct their fees (typically 0.5% - 5.0%) and they pay the remainder to the borrowing company.

Terms & Terminology

“Accounts Receivable” – items or services your business has already provided and another party has agreed to pay for; typically represented by an invoice detailing the items or services provided, price, and terms of payment

“Collateral” – items of hard value used to secure a loan; if the loan is not repaid, lender has the right to take ownership of the collateral involved and sell it to recoup some or all of their loss

“Full Recourse Clause” – a provision of some factoring agreements in which the business selling its AR can be held partly or fully responsible for uncollected amounts after a certain time period

“No Recourse” – factoring agreement in which the factor is 100% responsible for collection; the business selling its AR cannot be held culpable for unpaid amounts

“AR Reserve Account” – A separate account into which a portion of paid invoices is deposited in order to act as a buffer against future unpaid invoices. Many small businesses keep this sort of account as part of their standard operations; in this case, it may be required by the factor to insulate them from losses due to difficulty collecting on outstanding invoices.

Things to Consider

While interest rates on accounts receivable lending tend to be low, other charges and transaction fees make this a relatively expensive way for small businesses to finance. Depending on the details of each accounts receivable financing agreement, your business may be partly or wholly responsible for unpaid invoices after a certain time period.

Pay attention to the details of any contracts you sign for factoring accounts payable. While most factors are honest businesspeople just like yourself, it’s important to fully understand the terms and length of time to which you’re committing. As in any business, one key to satisfaction is clarity up front.

Some customers react poorly to discovering their account has been sold to a third party. If a sense of personal connection or mutual trust is important to your business, you may need to consider how you frame this for clients. It’s easily misinterpreted as turning them over to collections, but even without that, it can strain your relationships with the affected customers.

Why Loanry?

If you’re a small business owner, you don’t have time to go door-to-door looking for the best terms on a lunch special, let alone waste days trying to sort out options for accounts receivable funding. That’s where Loanry can help. Our site and services are here day or night, weekends and holidays, during droughts, floods, or snowstorms. We’ll always do our best to get back to your promptly if you have questions, whether you submit them on your cell phone on the subway home from a late meeting or from your laptop early Sunday morning before the kids are awake.

You’re an expert at your business. You understand the ins-and-outs of your field and probably know more about your competitors than many of their own customers do. We’re experts at our business as well. We don’t loan money, but we do maintain a curated database of reputable online lenders who do. When you’re ready, all it takes is a little introductory information and we’ll scour that database for the accounts receivable factoring companies we think may meet the needs of your business in your specific circumstances.

From that point, it’s their job to make their best pitch to you and earn your business. Presumably, your customers don’t come to you trying to prove they’re worthy; you seek them out and try to inform them of why they should become your customers in the first place. Why should lending or factoring be any different? You’re the customer – they should come to you, or at least meet you halfway. We can help you make that connection.


You probably didn’t start your business just to make money, but making money is an essential part of any small business if you’re going to be around for long. Accounts receivable financing can help you weather slow months or secure the cash to make big moves when the time is right instead of waiting endless months for the funds owed to you to trickle in. Whether it’s the opportunity to make a major purchase at an unbelievable price or the chance to woo just the right addition to your staff, accounts receivable funding puts the “liquid” in liquid assets.

Factoring accounts payable may help you build your own credit history by making it easier to pay your bills in a timely manner. Your own repayment of the factored funds contributes to a positive credit history as well, often in a shorter time period than a traditional installment loan. The important thing is to remain cognizant of other options for small business financing. Factoring isn’t the best choice in all situations, but it’s a great option in some of them.

Chances are you have a business plan which encompasses, among other things, your financial goals for the next year, the next five years, and beyond. Just because we have something on paper, however, doesn’t mean we always think about it every day or stay as focused as we should be on the bigger picture. Being an entrepreneur or running your own business quickly provides more than enough excitement, headaches, details, and other activity to fill any 27-hour day. That’s why it’s important, even when wrapped up in trying to make sales, manage people, or figure out your best options for receivables lending, to take a moment and keep one eye on your long-term goals and how what you’re doing right now fits into that picture. If it doesn’t, you need to stop and either adjust your long-term goals or change what you’re doing.


You’re an expert at your business and we’re experts at ours. Anything we know about setting up a small business, borrowing money as small business, paying taxes as a small business, and dozens of other issues of interest to – you guessed it – small business, is available here on Loanry or somewhere else in the Goalry family. We have thousands of informational and encouraging articles posted on our blogs and hundreds of related videos for easy reference. A single log-in and password will identify you across our entire content mall.

It’s not just about small business loans. Our vision is to provide users with whatever information and access they require to take more efficient control of their personal and small business finances. Learn about different sorts of savings accounts or investment options on or check your credit scores on before learning more about what sorts of things appear on your credit report. Read about maintaining an effective household budget, different types of small business loans, or how to best prepare for tax season – any time, from any connected device, without cost or commitment.

Whatever you need to know, there’s a good chance it’s covered in plain, simple English and freely accessible.

We hope you’ll visit,,,,,,, and – and of course you may utilize as often as you wish. The focus of each is different, but the goal of everything in the family is the same – to help you take better control of your financial world by offering a central location for information, comparisons, and connections.

We can’t make it easy, but it doesn’t always have to be so hard. And you don’t have to do it alone.


Did You Hear?

“The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer”

Nolan Bushnell (American Businessman, Electrical Engineer, and founder of Atari, Inc., and Chuck E. Cheese’s Pizza)

Educate Yourself

Accounts Receivables Factoring: Financing to Bridge

the Gap

Few things are as challenging as keeping a small business moving forward in these complicated times. When small business owners are asked about their biggest challenges, or former owners asked why their business failed, one of the most consistent responses is “financing.” Maintaining ready access to capital is essential to remain adroit and maintain momentum. It’s never been truer what they say about needing to have money to make money.

One option for bridging those tough months is accounts receivable financing, or “factoring.” It’s a common but non-traditional form of lending which allows you almost immediate access to future revenue. In this brief video, we’ll cover the basics of factoring and what it can and can’t do for your business. We’ll explain the key terminology and lay out the most common pros and cons.

Only you can decide what’s best for your business. What’s best for ours is providing you ready access to as much relevant information as possible in plain, simple English. Then, if you decide you’d like help finding the right factor or lender, let us know. We’re glad to help.

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Reasons for Business Accounts Receiveable Financing Loans

Every business is different, and every situation its own. Why might accounts receivable financing (i.e., factoring) be right for you this time?

Avoid New Debt

Small businesses often need both short and long-term financing, but you don’t want to take on debt if you don’t have to. Factoring gives you access to quick cash based on assets you already have.

Get Paid Quickly

As an entrepreneur, you’ve no doubt learned to be adept and to adopt quickly to changing circumstances. A traditional loan may take just a little bit too long for you to use that cash at maximum effectiveness; AR financing tends to move much more quickly.

Bridge Seasonal Gaps or Market Downturns

Your business may naturally be seasonal, or feel the impact of the normal ebb and flow of small business more severely than some. Factoring can help you weather the lean months without adding new debt or cutting back on your own services.

Purchase Inventory or Supplies

Part of keeping your business moving forward is having what you and your customers need, when it’s needed. AR financing lets you keep your own supplies and inventory fresh and keeps your business growing.

Use Other People’s Credit

AR financing is largely based on the established creditworthiness of your customers. It’s not hampered by your own limited credit history or past credit difficulty.

Build Your Own Credit Profile

Factoring or AR financing allows your small business to establish or improve its own credit history. Ask your factor to specifically report successful transactions to the credit bureaus and you’re on your way.

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Find answers to some of the most commonly asked questions here

We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


We are a marketing lead generator and advertising service designed to provide you with quick and convenient access to third-party lenders.


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