Accounts receivable financing is a loan a business gets to collect money owed by customers. The lender pays the business a percentage of the total amount the customers owe, usually done for a period of time. The money can fund other operations, such as inventory purchases or working capital.
Accounts receivable financing is known as “factoring” or “invoice discounting.” The practice has existed since medieval times when merchants would sell their goods on credit for later payment. In modern times, accounts receivable financing is often used to help small businesses obtain short-term cash flow while they wait for payments from customers who have bought goods or services on credit.
