Accounts Receivable Financing is a financing method where businesses raise funds by using their unpaid invoices as collateral. It allows companies to access immediate cash instead of waiting for customers to pay.
How It Works:
- A business generates invoices for credit sales.
- It approaches a lender or financing provider.
- The lender advances a percentage (e.g., 80–90%) of the invoice value.
- The customer pays the invoice on the due date.
- The remaining balance is settled after deducting fees.
Benefits:
- Improves cash flow instantly
- Reduces working capital gaps
- Supports business expansion without new debt burden
- Helps manage long payment cycles (especially in exports)
Example:
An exporter has ₹20,00,000 worth of invoices due in 60 days. By using receivable financing, they receive ₹17,00,000 upfront, helping them continue operations without waiting for payment.