Accounts receivable credit lines work by you pledging to sell your invoices or receivables to a “factor” or a bank at a small discount, the invoices to your customers for accounts receivable can then be exchanged into a type of “credit line” for immediate cash usage.

This is very handy for businesses that need working capital and don’t have the time to wait for their paying customers to pay their net term invoices. In addition, you are offered flexibility since you’re only borrowing what you only need.

A number of banks offer credit lines as part of their accounts receivable financing package. Usually credit lines are matched with the size of businesses the factor desires to attract. Factoring companies are more aggressive but also a little more expensive.

Jim Frey
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