Loan types
Accounts receivable financing, and why your ledger is worth less than you think
A revolving line secured by your invoices, priced on the drawn balance instead of sold at a discount. The surprise is never the rate. It is how much of your ledger counts.
Accounts receivable financing is a revolving line of credit secured by your unpaid invoices. You keep the invoices, you keep collecting from your own customers, and you pay interest only on what you actually draw. It is the cheaper and quieter cousin of factoring, and the first thing that surprises every new borrower is how much of the ledger the lender refuses to count.
The mechanic is a borrowing base. Every week or month you submit an aging report. The lender strips out the receivables it will not lend against, applies an advance rate to what is left, and that number is your availability. You draw against it, you pay it down as customers pay you, and you repeat. Nothing is sold and, in most facilities, nobody tells your customers anything.
A $650,000 ledger, converted into real availability
Say your aging report shows $650,000 outstanding. That is not the number the lender is working from. Here is what actually happens to it on a typical facility with an 85 percent advance rate.
| Line | Amount | Why |
|---|---|---|
| Total accounts receivable | $650,000 | What your aging report shows |
| Less invoices over 90 days | $60,000 | Aged paper is treated as uncollectible, and it often taints the rest of that customer's balance |
| Less concentration above the cap | $45,000 | One customer over the 25 percent limit gets trimmed to the limit |
| Less credits, contra accounts, offsets | $15,000 | If you also buy from that customer, they can net your invoice against theirs |
| Less intercompany and related party | $10,000 | Not an arm's length receivable |
| Eligible receivables | $520,000 | The only number the advance rate touches |
| Availability at 85 percent | $442,000 | Roughly 68 percent of the ledger you started with |
Two thirds of face value is a good outcome, not a bad one. A ledger with heavy 90 day paper, one customer at half the book, or a lot of progress billing can convert at 40 percent or less. If you want a bigger line, the fastest lever is almost never the advance rate. It is cleaning up the aging report, which is entirely within your control. Our note on days sales outstanding covers where to start.
What it costs on $250,000 drawn
Pricing has three parts, and only the first one gets quoted to you up front. Interest on the drawn balance, commonly prime plus 2 to prime plus 8. A monthly collateral management or servicing fee, commonly 0.25 to 1 percent. And the fixed costs of running a monitored facility.
- Interest
- Charged only on the outstanding balance, accrued daily. On $250,000 drawn at 12.5 percent for a full year, $31,250
- Collateral management fee
- 0.4 percent a month on the average outstanding. On $250,000, about $12,000 a year
- Origination
- 0.5 to 1.5 percent of the committed facility, paid once. On a $500,000 commitment at 1 percent, $5,000
- Field exam and audit
- $1,500 to $5,000 a year on facilities this size, sometimes waived in year one and never after
- Unused line fee
- 0.25 to 0.5 percent on the undrawn portion, on some facilities but not all
- What is filed
- A first position UCC-1 on receivables and usually on all business assets
Add those up and a $250,000 average draw held all year costs roughly $52,000, which is about 21 percent all in. Now hold the same $250,000 for only 60 days a year. Interest drops to about $5,100 and the servicing fee to about $2,000, but the $9,000 of origination, exam, and audit cost does not move. Total $16,100 for two months of money, which annualizes near 39 percent.
That is the single most useful thing to know about this product. A receivables line is cheap if you live on it and expensive if you touch it twice a year. If your cash gap is occasional, a general line of credit or a short term facility usually costs less once the fixed monitoring costs are counted. If you are drawn most weeks because your customers pay in 45 to 60 days and your payroll runs weekly, this product is close to the cheapest money a growing company can get without a bank relationship.
How it differs from factoring
People use these two terms interchangeably and they are not the same transaction. Factoring is a sale. The factor buys the invoice, owns it, and usually collects it. Receivables financing is a loan secured by invoices you still own and still collect.
| AR financing | Invoice factoring | |
|---|---|---|
| Legal form | Secured loan | True sale of the invoice |
| Who collects | You do | The factor, in most facilities |
| Customer notification | Usually none | Almost always, by notice of assignment |
| Priced as | Interest on the drawn balance | A discount on invoice face value |
| Cost on $250,000 for 60 days | About $7,100 in interest and servicing | About $10,000 to $15,000 at 2 to 3 percent for 30 days, doubled |
| Who qualifies | Cleaner books, better controls, usually $500,000 of AR or more | Almost any business with creditworthy customers |
| Bad debt risk | Stays with you | With the factor if the facility is non recourse |
The honest rule: if your books are clean enough to produce a reliable weekly aging report, receivables financing costs meaningfully less. If they are not, or if your customers pay slowly and unpredictably, factoring is the product that will actually fund, and the extra cost is buying you a collections department. The full comparison runs both on the same ledger.
Who this actually fits
The profile is narrow and specific. You sell to other businesses on terms, not to consumers. Your invoices are for work that is finished and accepted, not for milestones a customer can dispute. Your costs land before your revenue does, which is why the gap exists in the first place. And you have enough of a bookkeeping function to produce an aging report that ties to the general ledger without a week of cleanup.
Staffing agencies fit almost perfectly, because payroll runs weekly and clients pay in 45 days. Freight brokers, commercial cleaning companies, wholesale distributors, and IT services firms fit for the same reason. Restaurants, retailers, and anyone paid at the point of sale do not fit at all, because there is no receivable to lend against. Those businesses belong in a revenue based product instead, and it is worth knowing that before you spend two weeks assembling a file for the wrong facility.
What gets a file declined
- Customer concentration. One account above 25 to 30 percent of the book. Some lenders will carve out a higher limit for an investment grade buyer, but most will not.
- Progress billing and retainage. Construction receivables tied to milestones are hard to collateralize, because the buyer can refuse payment for reasons that have nothing to do with your invoice. Many general lenders will not touch them.
- Government receivables. Assignable only under the Assignment of Claims Act with specific paperwork. Doable, but not on a fast timeline.
- Books that do not tie out. If the aging report does not reconcile to the general ledger and the bank deposits, the file stops there. See what underwriters look for.
- An existing blanket lien. Another lender's UCC-1 on all assets has to be subordinated or terminated first, and that negotiation can take longer than the underwriting.
- Chronic dilution. Above roughly 5 percent it costs you advance rate. Above 10 percent it costs you the facility.
What Exp Capital does with this
Exp Capital Solutions is a broker. We do not lend against receivables, we do not set advance rates, and we do not approve borrowing bases. What we do is look at your aging report before it goes anywhere, tell you what it will actually convert to, and place the file with the funding partners whose eligibility rules match your customer base. If your ledger is too concentrated or too young for a monitored line, we will say so and point you at factoring or a simpler product instead, even though the smaller deal pays us less.