How Accounts Receivable Financing works
Accounts receivable financing helps a business convert eligible unpaid invoices into current working capital. In factoring, a provider purchases invoices; in an asset-based facility, receivables may secure a borrowing base. These structures create different ownership, recourse, notice, and collection arrangements.
Providers focus on invoice validity and the credit quality of the business's customers, as well as dilution, disputes, concentration, and payment history. Excel Capital Funding may refer qualifying requests to independent receivables finance providers.
May be a fit for
- B2B or government-facing businesses that invoice after delivery
- Companies with creditworthy customers but slow payment cycles
- Growing businesses whose receivables increase faster than available cash
- Businesses able to document delivery and invoice approval
What providers evaluate
- Eligible commercial invoices for completed goods or services
- Credit quality and payment behavior of account debtors
- Invoice aging, concentration, disputes, offsets, and dilution
- Contract terms, assignment restrictions, and required notices
- Business compliance and absence of conflicting liens unless resolved
Common documents
- Accounts receivable aging report
- Customer list and concentration report
- Invoices, contracts, purchase orders, and proof of delivery
- Business bank statements and financial statements
- Lien, tax, and organizational records requested for diligence
Common business uses
- Payroll while customers complete payment cycles
- Materials needed to fulfill new orders
- Supplier payments
- Operating expenses linked to billed work
Required documents and permitted uses vary by provider, product, industry, and transaction. Additional information may be requested.
Evaluation process
- Provide a receivables aging report, customer information, and sample supporting documents.
- A provider evaluates the business, customers, invoices, liens, and proposed structure.
- Review advance mechanics, reserves, discount or interest charges, service fees, recourse, customer notice, collections, eligibility rules, and minimums.
- After closing, eligible invoices are submitted for verification and funding under the provider's procedures.
Points to consider
- Not every invoice will qualify, and customer concentration may limit availability.
- Recourse provisions can require the business to replace or repurchase invoices that remain unpaid or become disputed.
- Customer notification and provider-managed collections can affect client relationships.
- Compare the effective cost together with reserves, minimum fees, audit charges, termination provisions, and operational reporting duties.
Frequently asked questions
What is the difference between factoring and receivables financing?
Factoring generally involves a sale of invoices. A receivables credit facility generally uses eligible invoices as collateral. Agreements vary, so review ownership, recourse, and collection terms.
Will customers know about the arrangement?
They may. Some structures require a notice of assignment or direct payment to a controlled account. Confirm the communication and collection process before accepting.
What happens if a customer does not pay?
The result depends on whether the transaction has recourse and why the invoice is unpaid. The business may have to replace or repurchase the invoice under the agreement.
Excel Capital Funding LLC acts solely as a commercial financing broker and referral source and is not a direct lender. Products are offered by independent providers and are subject to their underwriting, approval, documentation, and availability. Excel Capital Funding does not offer, broker, or arrange financing for businesses located in California.