What Is Accounts Receivable Financing?

Accounts receivable financing is a business financing asset class that allows companies to secure immediate capital using their outstanding invoices as collateral. Often referred to as AR financing or receivables financing, this solution bridges the critical gap between delivering a service and receiving the actual payment.

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A More Flexible Alternative to Traditional Bank Loans

Traditional Bank Loan

Based on strict historical credit history
Creates long-term balance sheet liabilities
Slow approval times (weeks or months)

Accounts Receivable Financing

Based on the creditworthiness of your B2B client
Flexible, scalable asset-backed working capital
Fast access to cash (often within 24-48 hours)

Unlike traditional credit structures, this option does not force your company to take on restrictive term debt. Instead, it leverages your accounts receivable ledger to create a flexible credit asset. This ensures your accessible capital scales perfectly alongside your sales volume.

How It Works

The mechanics of accounts receivable funding are straightforward and designed to integrate seamlessly into your standard billing workflows.

Step 1: Invoice Generation and Delivery

Your business delivers goods or services to your corporate or government clients. You generate an invoice as usual, maintaining your standard net-30 to net-90 payment terms.

Step 2: Forwarding and Verification

You send copies of these open invoices directly to Alterna Capital Solutions. Our commercial team quickly verifies the fulfillment of the contract delivery terms.

Step 3: Immediate Capital Advance

Alterna advances a substantial percentage of the total invoice value directly into your business operating account. This initial advance typically ranges from 80% to 90%.

Step 4: Debtor Settlement

Your client pays the invoice amount according to their normal schedule. Payments are made to a secure lockbox account managed by Alterna.

Step 5: Final Reserve Rebate

Once the payment clears, Alterna releases the remaining 10% to 20% reserve balance back to your company, minus a clear and predictable financing fee.

Benefits

Using your outstanding invoices to generate immediate cash flow offers strategic advantages to expanding businesses.

Accelerated Cash Flow

Converts slow-moving receivables into operating cash within 24 to 48 hours of billing.

Debt-Free Working Capital

Enhances your liquid cash reserves without adding liabilities to your corporate balance sheet.

Uncapped Scalability

Capital access limits grow automatically as your sales to creditworthy corporate customers scale up.

Credit Decision Support

Includes rigorous credit background analysis on your prospective clients to lower bad debt risk.

Early Payment Discounts

Provides the cash needed to secure bulk purchase discounts from your primary suppliers.

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Who Qualifies?

Receivables financing qualifications focus on the underlying financial strength of your business-to-business (B2B) or business-to-government (B2G) clients, rather than your business’s historical credit score.

Qualifying Criteria Matrix

Customer Base: B2B or B2G clients with established financial profiles
Minimum Monthly Invoicing: $50,000+ in corporate receivables
Contract Status: Verifiable delivery of products or completed services
Legal Standing: Free of active tax liens or un-waived primary security interests

This specific structure makes funding highly accessible to rapid-growth firms, companies navigating turnarounds, or startups that lack the history required by traditional commercial banks.

Accounts Receivable Financing vs Invoice Factoring

While both mechanisms utilize customer invoices to secure business financing, their structural design, target audience, and market messaging serve distinct goals.

Operational Feature

Accounts Receivable Financing

Invoice Factoring

Target Users

Used by CFOs, corporate treasurers, and established mid-market entities.

Used by early-stage firms, freelancers, and smaller businesses.

Customer Interaction

Often maintains standard billing collections or confidential processing.

Factoring firm directly manages customer accounts receivable collections.

Facility Structure

Operates like an asset-backed facility against a broad ledger.

Involves the direct sale of individual invoice certificates.

Balance Sheet Impact

Structured as an asset-backed line of credit secured by receivables.

Treated as a true sale of assets.

Costs and Considerations

The total cost of accounts receivable financing is primarily determined by two variables: the total volume of invoices processed monthly and the credit profiles of your debtors.

Financing Cost Components

Base Discount Fee: Typically 1.5% to 3.5% per 30-day period an invoice remains open
Prime-Linked Floating Rates: Applied to outstanding advanced balances on large facilities

Critical Variables to Manage

Customer Diligence: Payments delayed past 60 days can increase financing fees.
Recourse Provisions: Ensure your team understands whether your facility requires you to buy back uncollectible accounts.

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Industries

Invoice factoring is widely used in industries where customers pay on net terms and operating costs come due before receivables are collected.

Wholesale

Fund inventory purchases & keep shipments moving without delay.

Learn More About Wholesale ››

Manufacturing

Cover materials, labor, and production costs before customer payments arrive.

Learn More About Manufacturing ››

Large Fleet Transportation

Keep your fleet operations on schedule with fuel and payroll.

Learn More About Transportation ››