AR financing

Accounts receivable financing: borrow against invoices or sell them.

If customers pay you on 30, 60 or 90 day terms, your cash is sitting in receivables. There are two main ways to get at it early, and the difference matters for cost and for your customers.

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Two products, one asset

Updated October 13, 2026 · Merchant Fund Express

Accounts receivable financing uses your unpaid invoices as collateral for a loan or credit line. You keep the invoices, you keep collecting from customers, and you repay the funder as money comes in.

Invoice factoring is a sale. A factor buys specific invoices at a discount, advances most of the face value now, collects from your customer and pays you the remainder minus its fee. Our invoice factoring page covers that product in depth.

Side by side

	AR financing	Factoring
Ownership of invoices	You keep them	Sold to the factor
Who collects	You	Usually the factor
Customer notified	Usually not	Often yes
Based mainly on	Your business and receivables	Your customers' credit
Repayment	As invoices are paid	Factor keeps its fee from collections

A worked example (illustrative)

Item	Amount
Open invoices	$120,000 due in 60 days
AR financing: advance rate 80%	$96,000 available as a line
Factoring: 85% advance on the same invoices	$102,000 now
Factoring fee at 3% for 60 days	$3,600
Factoring remainder when customers pay	$14,400

Factoring often advances more and is easier to qualify for because it leans on your customers' credit. AR financing keeps the customer relationship entirely in your hands. Compare the fee per 30 days, not just the headline percentage.

All figures in worked examples are illustrations of the arithmetic, not offers or quotes. Real terms depend on your file and the funder.

Who fits each

AR financing: established B2B businesses with a spread of reliable customers that want to keep collections in-house

Factoring: fast-growing businesses, or those whose customers have stronger credit than they do

Neither: businesses that sell mostly to consumers at the register; revenue-based funding reads card and bank deposits instead

What drives the cost

How long your customers take to pay: a 90 day invoice costs more to finance than a 30 day one

The credit quality of your customers, especially for factoring

Concentration: one customer making up most of your receivables raises risk

Recourse: whether you must buy back an invoice the customer never pays

Extra fees for setup, minimum volume or early termination

Ask every provider for the total cost on a sample invoice, from advance to final payment, and compare those dollar figures.

Where revenue-based funding fits

If your problem is not one slow customer but a general gap between expenses and deposits, revenue-based funding is read on total deposits rather than specific invoices. See factoring vs merchant cash advance for that comparison.

Documents to have ready

An accounts receivable aging report

Copies of the invoices and the contracts behind them

Three months of business bank statements

A list of any existing liens or UCC filings

Ready to see your options? Check your fit or apply.

Common questions

Is accounts receivable financing the same as factoring?

No. AR financing borrows against invoices you keep; factoring sells the invoices to a factor that usually collects them.

Will my customers know?

With AR financing usually not. With factoring they are often told to pay the factor.

What does it cost?

It depends on the advance rate, the fee and how long invoices take to pay. Compare the fee per 30 days across offers.

Can I use both?

Sometimes, but existing liens on receivables can block a second provider. Disclose all existing financing.

What is recourse in factoring?

With recourse, you must buy back or replace an invoice your customer fails to pay. Non-recourse shifts some of that credit risk to the factor, usually for a higher fee and only for specific reasons such as customer insolvency.