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Accounts receivable financing — sometimes called invoice discounting — is a form of working capital credit in which outstanding invoices serve as collateral. The bank or financier provides 70-85% of the accounts receivable portfolio as credit, which you draw upon as needed. The customer pays you directly; you repay the financier upon receipt. Difference from factoring: you remain the owner of the invoices and have no influence on the customer relationship. Below: how it works, costs, and when Karim's operating company chooses this option.
The short answer
- What: credit with outstanding invoices as collateral.
- Advance payment: 70-85% of accounts receivable portfolio.
- Interest: 5-8% on the amount borrowed, plus monitoring costs.
- Difference compared to factoring: you remain the owner of the invoices, the debtor risk remains with you.
- For whom: B2B companies with a reliable accounts receivable portfolio (€200,000+).
How does accounts receivable financing work?
- Bank/lender assesses accounts receivable portfolio — customer quality, average payment term, concentration risk.
- Credit limit set as a percentage of portfolio (70-85%).
- For every new invoice: monthly/weekly upload to financier.
- Lender increases available credit in line with portfolio.
- Customer pays to the standard account number (no change for the customer).
- Upon receipt: you pay off the financier.
- Interest only on the actual amount withdrawn (not on the entire limit).
Difference with factoring
| Aspect | Accounts receivable financing | Factoring |
|---|---|---|
| Owner invoices | You remain the owner | Factor becomes owner |
| Customer sees | Nothing — normal payment to you | Factor name on invoice |
| Debtor risk | With you | Often associated with factor (without regress) |
| Debt collection | Because of you | Due to factor |
| Costs | 5-8% interest + monitoring | 1-3% per invoice |
| Advance payment | 70-85% of portfolio | 80-90% per invoice |
For B2B with good customer relationships: accounts receivable financing is often preferred (more discreet). For cash flow speed and risk transfer: factoring.
Conditions and requirements
Banks/financiers require:
- Minimum portfolio size: typically €200,000 – €500,000.
- Diversification: no single client exceeding 25% of portfolio (concentration risk).
- Customer quality: B2B companies with a good payment reputation.
- Administration: digital, transparent, integration with financing system.
- Terms of sale: clear, no aggressive retention clauses.
- Accounting software: integration with Exact, Yuki, Twinfield, Moneybird often required.
Costs
- Interest: 5-8% on the amount borrowed — variable with market rate.
- Setup costs: €1,500 – €5,000 one-off.
- Monitoring fee: 0.1-0.5% of portfolio per month, or a fixed amount (€250-€1,000/month).
- Audit: annual audit €1,000-€3,000.
Example: €300,000 portfolio, 75% advance = €225,000 credit. Drawn €150,000 × 6% = €9,000 interest + €4,500 monitoring = €13,500/year = 9% effective.
When is accounts receivable financing appropriate?
- B2B company with long payment terms (45-90 days).
- Growing revenue with increasing working capital requirements.
- Non-seasonal — predictable accounts receivable flow.
- Insufficient bank financing through regular channels.
- Discretion important: clients must not see the factor's name.
Karim's accounts receivable financing
Karim's ICT operating company is growing rapidly:
- Monthly turnover: €80,000.
- Average payment term: 60 days.
- Average accounts receivable portfolio: €160,000.
- With debtor financing 75%: €120,000 in credit available.
- Actually withdrawn during peak: €80,000.
- Annual interest + fees: €8,000 (effective 10%).
Karim maintains an overdraft facility as an emergency buffer (€50,000 limit, 8% interest) — the combination provides maximum flexibility.
Pitfalls
- Concentration risk: 1 major customer leaves = credit drops immediately.
- Poor administration: lender lowers limit for disorganized debtors.
- Customer dispute: disputed invoices often fall out of the portfolio.
- Inflexibility: limit scales with portfolio — burden during seasonal fluctuations.
- Audit costs: including annual external supervision.
Honest recommendation
For B2B companies with a growing accounts receivable portfolio (€300,000+): accounts receivable financing is often a better option than factoring — more discreet and cheaper. However, it requires proper administration and integration with accounting software. For smaller portfolios or urgent cash flow needs: factoring is a faster route. For a strategic combination: current account (flexible) + accounts receivable financing (structural) + supplier redemption (free) — optimal working capital mix.
For other topics: factoring, working capital financing and small business loan.
Frequently Asked Questions
Working capital credit secured by outstanding invoices. The lender provides 70-85% of the accounts receivable portfolio as credit — you use as needed. The customer pays you directly, and you repay the lender upon receipt.
With accounts receivable financing, you remain the owner of the invoices — no factor name visible, the debtor risk lies with you, and you collect. With factoring, the factor purchases the invoice. Accounts receivable financing is more discreet and often cheaper, while factoring is faster and transfers risk.
Interest 5-8% on the amount withdrawn, setup costs €1,500-€5,000 one-off, monitoring fee 0.1-0.5% of the portfolio per month. For a €300,000 portfolio with €150,000 withdrawn: typically €13,500 per year, effective 9-10%.
Minimum portfolio size (€200,000+), diversification (no customer > 25%), customer quality (B2B with a good payment reputation), digital administration, integration with accounting software, and clear terms and conditions of sale.
B2B companies with long payment terms (45-90 days), growing revenue with increasing working capital requirements, a predictable flow of receivables (non-seasonal), and a need for discretion (customers do not see the factor).
Concentration risk (losing 1 major client = credit decreases), poor administration lowers the limit, disputed invoices are removed from the portfolio, limited flexibility during seasonal fluctuations, and annual audit costs are taken into account.
Yes — typically with current account credit (flexible emergency buffer) and supplier redemption (extended payment term). A combination of structural (accounts receivable finance) + flexible (current account) + free (supplier) provides an optimal working capital mix.
