Accounts receivable financing is an effective short-term funding option for businesses that need quick access to cash without taking on traditional debt.
1. Application Process:
- Businesses select invoices from reliable customers to use as collateral.
- Required documentation may include accounts receivable aging reports, business licenses, tax returns, and outstanding invoice details.
2. Funding:
- The lender advances a percentage of the invoice value (typically 70-96%) as a loan or line of credit.
- Fees are charged based on the invoice amount, customer creditworthiness, and repayment time, ranging from 1% to 5%.
3. Customer Payment:
- Customers pay the business directly (unlike factoring, where the lender collects payments).
4. Repayment:
- Once the customer pays the invoice, the business repays the lender the advanced amount plus fees or interest.