Account Receivable Financing

What is the meaning of account receivable financing?

Also known as invoice financing, account receivable financing is an arrangement in which businesses can convert their outstanding invoices into cash. This financing option is perfect for small to medium businesses (SMEs) that have a steady stream of recurring invoices. 

Account receivable financing offers several key benefits. It allows businesses to improve cash flow, frees up working capital, and offers flexible financing options. However, it’s important to note that lenders will typically charge fees based on the amount and the duration of the financing.

Here’s how it works:

1. You issue an invoice to the buyer for the sale of services or products.

2. You submit your invoice to the lender.

3. You receive a certain predetermined amount of your invoice value in cash from the lender.

4. The buyer pays you or the lender to clear the invoice.

5. Any remaining funds after the deduction of fees will be returned to you.

Account receivable financing can be a strategic tool for businesses of various sizes looking to improve cash flow, navigate temporary cash flow gaps, and unlock working capital for growth.