Definition
Funding that advances cash against a company's unpaid B2B invoices, repaid when customers pay.
Why it matters
It can take the form of factoring (selling invoices) or an asset-based line (borrowing against them).
Where it shows up in a deal
The phrase appears at the top of a term sheet as a category rather than a product, and the structure underneath it decides everything that follows. A funder proposes either a purchase of invoices or a secured line against them after reviewing your aging, your reporting quality and whether you can tolerate customer notification.
What it affects
- Whether the deal is a sale or a loan determines balance-sheet treatment and can trip covenants on other debt.
- Availability grows with billings instead of sitting at a fixed limit set from last year's accounts.
- Pricing is per 30 days outstanding, so your customers' actual days to pay, not the headline rate, set your cost.
- A first-position UCC filing on receivables is a condition of almost every structure.
A worked example
A $200,000 batch of invoices funded at an 88% advance and 1.25% per 30 days, prorated daily, with the customers paying on day 40: $176,000 advances on day one and $24,000 is reserved. The fee is $200,000 x 1.25% x 40/30 = $3,333, so the reserve releases $20,667 and you receive $196,667 in total.
The common mistake
Related terms
- Invoice FactoringSelling unpaid invoices to a factor for an immediate advance.
- Asset-Based LendingA revolving credit line secured by receivables, inventory or equipment.
- Advance RateThe percentage of an invoice's value a funder pays upfront.
- Invoice FinancingAn umbrella term for borrowing against or selling invoices.
Questions about how accounts receivable financing affects your facility?
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