Many companies sell on terms of 30, 60 or 90 days while paying staff, suppliers and overhead every week. On paper, the business looks healthy. In reality, cash is locked inside unpaid invoices and every delay from a major client turns into pressure on the rest of the operation.
Receivables financing, also called accounts receivable (AR) funding, is a direct response to that problem. Instead of waiting for customers to pay, businesses can convert part of their receivables into immediate cash and use it to stabilise operations, fund growth or negotiate better terms with suppliers.
This guide explains how receivables financing works, who it suits, the main structures in the market and how Financely Group helps businesses access domestic and cross-border AR funding solutions through lenders and trade finance providers.
Receivables financing is a form of working capital funding where a business uses its outstanding invoices as the basis for immediate cash. A lender, factor or trade finance provider advances a percentage of the invoice value and is repaid when the end customer settles the invoice.
Key characteristics include:
This makes receivables financing attractive to businesses with strong order books and reliable customers that pay on terms, but where cash flow is stretched by long payment cycles.
The mechanics differ slightly between factoring, invoice discounting and other tools, but the basic flow is similar.
The business delivers goods or services and issues invoices to creditworthy customers under agreed payment terms. These invoices, along with supporting documentation such as purchase orders, delivery notes or timesheets, are submitted to the receivables finance provider.
The provider reviews eligibility criteria, such as minimum debtor quality, concentration limits and maximum invoice age, before approving invoices for funding.
Once invoices are accepted, the provider advances a percentage of their value, typically in the range of 70 percent to 90 percent. This advance is paid to the business, often within a short timeframe after approval.
The advance rate depends on factors such as the customer base, sector, historic payment behaviour and whether the facility is with or without recourse.
When the customer pays the invoice, funds are routed to a controlled account in the name of the provider or the business, depending on the structure. The provider reconciles the payment against the funded invoice.
After full payment is received, the provider deducts fees and interest, then releases any remaining balance to the business. The cycle repeats as new invoices are issued and funded.
In a revolving facility, the business continually submits new receivables and draws advances, turning its sales ledger into an ongoing source of working capital.
Receivables financing turns unpaid invoices into near-term cash. Instead of waiting months for customers to settle, businesses can access a large part of the value soon after issuing the invoice. This helps cover payroll, supplier payments, tax obligations and other operating costs without scrambling for emergency overdrafts.
Unlike fixed term loans, receivables facilities typically grow with the sales ledger. As the business wins new contracts and issues more invoices to eligible customers, available funding rises. This makes AR funding a practical fit for seasonal businesses and companies in growth phases where traditional credit limits may lag behind revenue.
Many receivables facilities are treated differently from classic term loans. Funding is secured primarily against invoices and is repaid through customer collections. For companies that want to avoid stacking long-dated bank loans on the balance sheet, AR financing can be a cleaner way to fund working capital.
Reliable access to cash allows businesses to pay suppliers and staff on time, negotiate better terms and avoid last-minute payment extensions. That stability supports better pricing, priority allocation of stock and stronger long-term relationships across the supply chain.
Providers of receivables financing focus heavily on the quality of the debtor book and underlying contracts. Businesses that sell to large, established customers sometimes qualify for AR funding even when they have limited hard assets or a short operating history. Once the facility is in place, drawdowns can be fast if documentation is in order.
Receivables financing can fit a wide range of sectors, provided that sales are business to business and invoices are clear and enforceable.
AR funding is an umbrella term for several structures. The right option will depend on how visible you want the arrangement to be to your customers, how collections are managed and how risk is shared.
In a factoring arrangement, the finance provider purchases receivables at a discount. The factor usually takes over responsibility for collections and may notify customers that invoices have been assigned. The factor advances a portion of the invoice value upfront and pays the remainder, less fees, after collection.
Factoring is common where businesses want support with credit control and are comfortable with customers being aware of the funding arrangement.
With invoice discounting, the business retains control over collections and customer relationships. The provider advances funds against a pool of receivables, but customers continue to pay the business in the usual way, often into a designated account. The arrangement can be less visible to customers than full factoring.
Invoice discounting suits companies with stronger internal credit control processes that prefer to keep collections in-house.
Spot factoring allows businesses to finance individual invoices or a small batch on a one-off basis instead of committing to a full facility over the entire debtor book. This can be useful for specific large invoices, seasonal spikes or situations where the business wants to test receivables funding without a longer agreement.
In a recourse structure, the business remains liable if the customer does not pay, for example due to insolvency. The provider can reclaim advances or set off unpaid invoices against future funding. In a non recourse structure, the provider assumes the credit risk of the debtor in defined circumstances and cannot seek repayment from the business for eligible bad debts.
Non recourse facilities provide additional protection but usually come with tighter eligibility criteria and higher pricing, since the provider is taking on more risk.
| Structure | Key Features |
|---|---|
| Factoring | Provider buys invoices, often manages collections and may notify customers of the arrangement. Suits businesses wanting funding plus credit control support. |
| Invoice Discounting | Provider advances against receivables, while the business retains control over collections. Often less visible to customers. |
| Spot Factoring | One-off funding for selected invoices, useful for large or exceptional receivables. |
| Non Recourse | Provider takes defined credit risk on customers, offering protection against certain defaults in exchange for higher fees and stricter eligibility. |
The challenge in receivables financing is rarely finding a generic facility. It is finding a structure and lender that fits your customer base, sector, contract terms and cross-border exposure without locking the business into inflexible covenants or costly hidden fees.
Financely Group works with companies that want to use their receivables more effectively, rather than treating every cash flow issue as a reason to raise more long-term debt. Through regulated partners and specialist AR funders, we help:
The aim is to build receivables facilities that support growth and risk management rather than pushing short-term problems into costly long-term commitments.
Receivables financing is not a cure for weak sales or poor margins. It is a tool for businesses that have solid demand and credible customers, but need to close the gap between issuing invoices and receiving cash. Used properly, it releases working capital, stabilises operations and gives management more room to plan.
If your company is profitable on paper but constantly short on cash because customers pay slowly, AR funding may be worth a serious look. Financely Group can help you evaluate options and connect with receivables finance providers that understand your industry and risk profile.
Share your customer profile, typical payment terms and monthly invoice volumes with our team to explore receivables financing structures funded by banks and specialist lenders through our regulated partner network.
Discuss AR Funding OptionsDisclaimer: This page is for general information only and does not constitute legal, tax, accounting or investment advice. Financely Group acts as advisor and arranger through regulated partners and is not a bank or direct lender. Any receivables financing, factoring, invoice discounting, supply chain finance or capital raising process is subject to underwriting, KYC, AML, sanctions screening, legal review, documentation, perfected security and approvals by relevant stakeholders. No public offer or solicitation is made on this page.
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