Accounts Receivable Line of Credit (AR Line of Credit)
An accounts receivable line of credit is a type of short-term business financing that allows companies to borrow money using their outstanding invoices (accounts receivable) as collateral. This funding solution is especially useful for ecommerce brands, wholesalers, and B2B businesses that sell on net payment terms (like Net 30 or Net 60) and need to access working capital before customers pay.
What Is Accounts Receivable Line of Credit Financing?
Also called accounts receivable line of credit financing, this method provides a revolving credit facility based on the value of unpaid invoices. Lenders typically advance a percentage—usually 70% to 90%—of the total receivables, and as invoices are paid, the borrowed funds are repaid and become available again.
How It Works
- Your business submits outstanding customer invoices to a lender or financial institution.
- The lender advances funds, often within 24–48 hours.
- Once the customer pays the invoice, the lender deducts fees and releases any remaining balance.
- You can then draw more funds as new receivables are generated.
Unlike traditional loans, this line of credit is secured by your AR, not your assets or long-term financials. It’s ideal for businesses with solid sales but inconsistent cash flow.
Benefits for Ecommerce and B2B Sellers
- Faster cash flow without waiting 30–90 days for invoice payments
- Scalable financing that grows with your sales volume
- Often easier to qualify for than unsecured loans
- Can be used for payroll, inventory purchases, or marketing spend
This makes it a useful funding tool for ecommerce brands selling wholesale or to retailers, where payment delays are common. With steady receivables, AR-based credit lines can provide the cash needed to restock, fulfill orders, or expand.
An accounts receivable line of credit appears as a liability on the balance sheet, typically under short-term debt. Interest and fees are recorded as expenses on the income statement. It's essential to maintain accurate AR aging reports and reconciliations to stay in compliance with lender terms.
Modern accounting platforms like Finaloop help ecommerce businesses automatically track receivables, payments, and borrowed amounts, so you never fall out of sync.
Check out this article to read more about ecommerce debt.