Accounts receivable financing
A loan or line of credit secured on your unpaid invoices. The invoices stay yours, you usually keep collecting from your customers, and how much you can borrow rises and falls with what they owe you.
- Secured on invoices
How it works
Accounts receivable financing is borrowing against your unpaid invoices (your accounts receivable), rather than selling them as in factoring. The lender takes a lien on your receivables and lends you a share of the ones it counts as eligible.
- You sell to business customers on payment terms and invoice them.
- The lender sets a "borrowing base": a share of your eligible receivables. According to the Office of the Comptroller of the Currency (OCC), banks usually lend 70% to 80% of eligible receivables, and less when the risk is higher. Invoices that are long overdue, owed by related companies, or owed by customers who also sell to you are usually left out.
- You draw on the line as you need cash, and repay it as your customers pay you.
Who collects: in the simpler forms the OCC describes, your customers keep paying you and you make payments to the lender, reporting your receivables to it every month or so. The lender can instead tell your customers to pay it directly (notification), or have their payments go to an account it controls (a lockbox), without telling them (non-notification). The more closely a lender controls the cash, the closer the facility is to full asset-based lending.
What the lender checks: your customers' credit as well as your own, how often invoices turn into credits or disputes, and whether a few customers make up most of what you are owed. Expect a field audit before the line starts and usually once a year, a monthly report of unpaid invoices by age, and certificates from an officer of the business that the figures are right.
Read the agreement for: the interest rate and every fee (set-up, unused line, audits), what counts as an eligible invoice, how often you must report, and what happens if your borrowing base falls below what you owe.
Upsides and downsides
Upsides
- Customers usually keep paying you, so they need not know you borrow against their invoices
- The amount you can borrow grows as your sales grow
- You keep the invoices and the relationship with your customers
- Lighter reporting than fully controlled asset-based lending
Downsides
- You still chase your own late payers; the lender does not take that on
- Not all invoices count, so you can borrow less than you are owed
- Audits, reports and fees add cost and work
Risks
- If your customers do not pay, you still owe the lender
- If your borrowing base falls below what you owe, you may have to repay the difference quickly
- The lender's lien on your receivables can make it harder to get other finance against them
What it costs
- How it is priced
- Interest on the amount you draw, set by the lender, plus fees for setting up and monitoring the line
- Costs that are easy to miss
- Field audits, often charged to you
- Fees for the part of the line you do not use, where charged
- Staff time for monthly reports on receivables and officers' certificates
A share of your eligible receivables, usually 70% to 80% at banks, so it rises and falls with your sales.
Does it fit?
Could fit when
- You invoice other businesses and wait 30 days or more to be paid
- Your sales are growing and cash is tied up in unpaid invoices
Unlikely to fit when
- Your customers pay upfront or by card rather than on invoice
- Your unpaid invoices are worth less than the amount you need
- Your business has traded for less than two years, so lenders that let you collect your own payments are less likely to say yes
Who can use it
- Business types: Sole proprietorship, Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative, Nonprofit
- Needs sales (revenue)
- Only for businesses that sell to other businesses
- Unpaid invoices from business or government customers
- Records good enough for monthly receivables reports and a yearly audit
- Usually a stronger financial record than lenders ask for in factoring or fully controlled asset-based lending
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all asset-based and specialist lending
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- Accounts receivable aging report
- Customer details
- Financial statements
Regulation and protections
Regulators: Office of the Comptroller of the Currency (OCC); Federal Deposit Insurance Corporation (FDIC); Federal Reserve; Consumer Financial Protection Bureau (CFPB); Federal Trade Commission (FTC); State lending and financial regulators.
Who runs it: Private providers, nationwide.
Banks that lend this way are supervised by their regulators. Federal Truth in Lending rules (Regulation Z) do not cover business loans. The Equal Credit Opportunity Act (Regulation B) covers business credit, so a lender that turns you down must tell you why or how to ask. The FTC Act bans unfair or deceptive practices by lenders that are not banks. Several states require lenders that are not banks to disclose their costs; see below.
Rules that differ by state
- California: A lender that is not a bank or credit union must give you a disclosure before you sign an offer of $500,000 or less, showing the funds you get, the total dollar cost, the term, the payments, the prepayment rules and an APR, and must get your signature on it. Since January 1, 2026, a lender that quotes you a price during an application must also state the APR. State rules in force since October 1, 2023 ban unfair, deceptive or abusive practices in commercial financing to small businesses, farms and nonprofits. (California Financial Code, Division 9.5: Commercial Financing Disclosures (sections 22800 to 22807); DFPI: commercial financing disclosure regulations effective December 9, 2022)
- New York: A lender that is not a bank or other financial institution must give you a disclosure when it makes a specific offer of $2.5 million or less, including the amount, the finance charge and the APR calculated as under federal Truth in Lending rules. Lenders that make five or fewer deals a year in New York are not covered. (New York Financial Services Law section 802: exemptions; New York Financial Services Law section 805: open-end commercial financing disclosures)
- Utah: A lender that makes more than five commercial financing deals a year in Utah must register with the state and, before you sign a deal of $1 million or less, disclose the funds you get, the total you will repay, the total dollar cost, the payments and any prepayment costs. No APR is required. Banks and credit unions are exempt. (Utah Code Title 7, Chapter 27: Commercial Financing Registration and Disclosure Act)
- Florida: For deals of $500,000 or less made since January 1, 2024, a lender that is not a federally insured bank or credit union must disclose in writing, at or before signing, the funds provided, the total you will repay, the total dollar cost, the payments and any prepayment costs. No APR is required. Lenders that make five or fewer deals a year in Florida are exempt. (Florida Statutes, chapter 559, part XIII: Florida Commercial Financing Disclosure Law (559.961 to 559.9615))
- Georgia, Kansas: Since January 1, 2024 in Georgia and July 1, 2024 in Kansas, a lender that makes more than five commercial financing deals a year in the state must disclose, before or when you sign a deal of $500,000 or less, the funds provided, the amount actually paid out, the total you will pay, the total dollar cost, the payments and any prepayment costs. No APR is required. Banks and credit unions are not covered. Brokers may not charge you an upfront fee. The state attorney general enforces the law; it gives you no right to sue. (Georgia SB 90 (2023), as passed (Act 78): commercial financing disclosures, O.C.G.A. 10-1-393.18; Kansas Statutes 75-784: required disclosures (2024); Kansas Statutes 75-785 to 75-787: exceptions, brokers and penalties (2024))
- Missouri: A lender that makes more than five commercial financing deals a year with Missouri businesses must disclose, at or before signing a deal of $500,000 or less, the funds provided, the amount actually paid out, the total you will pay, the total dollar cost, the payments and any prepayment costs. No APR is required. Banks and credit unions are not covered. Brokers must register with the Division of Finance and hold a $10,000 bond. The attorney general enforces the law; it gives you no right to sue. (Revised Statutes of Missouri 427.300: Commercial Financing Disclosure Law)
Types of provider: Banks and credit unions; Commercial finance companies; Online lenders that lend against invoices.
Also consider
What has changed
No changes since this page was published. It was last checked against its sources on October 20, 2026.
Sources
- OCC Comptroller's Handbook: Accounts Receivable and Inventory Financing (advance rates, secured financing, notification and non-notification) · checked October 20, 2026
- 12 CFR 1002.9 (Regulation B): notifications, including to business credit applicants · checked October 17, 2026
- 12 CFR 1026.3 (Regulation Z): exempt transactions, including business credit · checked October 17, 2026
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