Debtor financing is a form of financing in which a business borrows against its accounts receivable, or money owed by its customers. You might’ve heard it called accounts receivable financing, factoring, or invoice financing.
Businesses use debtor finance to access capital for inventory purchases, salary payments, or expansion financing. It is a popular financing option as it’s often easier to get than a classic bank loan, especially if you’ve faced some hurdles with loans in the past.
Lenders can buy those invoices and lend the businesses a good chunk of the invoice value. Then, when the customer pays, the business settles the loan. Debtor financing can be a great way for businesses to access funds quickly and can help them to manage their cash flow in the short-term.
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