Receivables finance provides funding against amounts a business is owed by its customers. The finance provider advances or purchases eligible receivables and is repaid from collections or by the business under the agreed structure.
Which structures are used?
Arrangements include factoring, invoice discounting, asset-based lending and receivables purchase facilities. They differ in ownership, notification, collection control and recourse.
How is availability calculated?
Assume a business has $250,000 of receivables, of which $40,000 is ineligible. At an 80% advance rate, gross availability is ($250,000 − $40,000) × 80% = $168,000. A $10,000 reserve reduces illustrative net availability to $158,000.
Illustrative receivables-finance calculation
| Calculation step | Amount | Method |
|---|---|---|
| Total receivables | $250,000 | Reported ledger |
| Eligible receivables | $210,000 | $250,000 − $40,000 |
| Gross availability | $168,000 | $210,000 × 80% |
| Net availability | $158,000 | $168,000 − $10,000 reserve |
Actual funding also depends on facility limits, concentrations, disputes, aging and fees.
Recourse vs. non-recourse structures
Recourse may require the business to replace or repay receivables that fail under agreed conditions. Non-recourse treatment transfers specified credit risk but usually retains exceptions for disputes, fraud or ineligible assets.
What should a business review?
Check eligibility, advance rates, reserves, concentration, reporting, collections, fees, security, recourse events and termination. Compare available cash and total cost, not only the headline rate.
