Accounts receivable (AR) is money owed to a business by its customers for goods or services already delivered but not yet paid for. AR appears as a current asset on the balance sheet and is the primary asset monetized through invoice factoring and invoice financing.
Accounts receivable represent the credit extended to customers — the gap between delivering value and receiving payment. When a B2B company invoices a client net-30, that unpaid invoice is AR. The balance grows with new invoices issued and shrinks as customers pay. AR quality matters for business financing. Lenders assess: (1) customer concentration — AR dominated by one customer is riskier than a diversified base; (2) aging — AR over 90 days is typically considered 'diluted' and excluded from advance calculations in invoice factoring; (3) customer creditworthiness — government or Fortune 500 debtors carry more weight than unrated small businesses. Invoice factoring converts AR into immediate cash: a factor purchases the receivable at a discount (typically 80–90% advance on face value), advancing the cash immediately and collecting from the customer directly. Invoice financing (also called AR lending) uses AR as collateral for a loan rather than selling the receivable outright. The Federal Reserve's Flow of Funds (Z.1 release, https://www.federalreserve.gov/releases/z1/) tracks business accounts receivable at the sector level. The SBA's guidance on accounts receivable financing (https://www.sba.gov/business-guide/manage-your-business/manage-your-finances) includes AR management as part of cash flow best practices for small businesses.
Invoice factoring is a sale — you sell the receivable to the factor, who takes ownership and collects directly from your customer. Invoice financing (or AR lending) is a loan — you borrow against the receivable as collateral, retain ownership, and collect from the customer yourself. Factoring is typically faster with looser credit requirements; financing preserves the customer relationship.
Most invoice factors and AR lenders exclude receivables over 90 days from their advance base. Receivables 60–90 days old often receive reduced advance rates (50–70% vs 80–90% for current AR). Keeping DSO low is essential to maintaining maximum AR borrowing base eligibility.