An accounts receivable (AR) line of credit is a loan that is secured against a business’ outstanding invoices. Small and medium-sized businesses use AR lines of credit to access capital when they cannot get approved for a traditional bank line of credit. Other names for an accounts receivable line of credit include invoice financing and invoice discounting.
An AR line of credit is often confused with invoice factoring because both forms of financing are secured against a company’s outstanding invoices. While an accounts receivable line of credit involves unpaid invoices being used as collateral for a loan, a factoring line of credit involves selling the invoices outright for cash advances.
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