Receivables Based Finance: Unlocking Working Capital for Today’s Digital Economy
Receivables based finance, encompassing:
- accounts receivable financing
- invoice finance
- debtor finance
- trade receivables finance
Receivables based finance can represent a sophisticated funding mechanism that transforms outstanding customer invoices into immediate liquidity. Rather than waiting for customers to settle invoices according to standard payment terms, businesses can access cash flow quickly through two primary routes: selling their receivables to a third party or using them as collateral for borrowing.
These financing structures enable companies to convert their accounts receivable into working capital for operational needs, growth opportunities and strategic initiatives. Given that accounts receivable often constitute a company’s most liquid asset after cash, this approach provides considerable financial flexibility.
As an asset-backed lender focusing on innovation economy firms, Channel takes collateral and mitigates risk in various shapes and forms, including insurance, revenue-based finance, inventory, but the most established form is trade receivables. Whilst this may appear to be a modern financial innovation, the concept has well-established roots. Forms of factoring can be traced back to the earliest commercial civilisations, demonstrating the enduring appeal of accelerating cash flow through receivables financing. Innovation economy firms are often asset light, and receivables are commonly one of the few remaining self-liquidating assets to achieve security as a lender.
Corporate treasurers face persistent challenges with cash tied up in working capital. Receivables financing addresses these challenges directly, offering a solution that can achieve off-balance sheet treatment, provide an additional liquidity source, diversify funding channels and preserve customer relationship control. This article explores the fundamentals of receivables finance, examines its various forms.
Understanding Receivables Finance
Trade receivables finance involves raising cash by selling or assigning receivables to another institution, typically a bank or non-bank lender. Funders generally finance a percentage of the receivables’ face value (e.g. 90%), creating immediate liquidity from future cash flows.
This approach leverages accounts receivable through either loan facilities, revolving credit lines or outright asset sales to third parties. Since receivables appear as assets on the balance sheet, they can secure funding in the same manner as physical assets, opening access to asset-based lending (ABL) options and specialised receivables-focused products.
Receivables represent the most liquid asset on a company’s balance sheet after cash, money earned but not yet available to spend. The right financing product to monetise these assets enables corporates strategically to address immediate challenges and pursue growth aspirations.
Ultimately, receivables finance enables businesses to access their money faster, circumventing the sometimes lengthy credit payment terms they must offer customers to remain competitive in their markets.
Types of Receivables Financing
You can tap into three types of receivables financing:
- Asset-Based Lending: Combine receivables with other assets as security to get a line of credit. This type suits larger businesses needing substantial cash sources.
- Factoring: Sell invoices to a third-party (factor) at a discount. The factor takes responsibility for collecting the payments, which reduces the administrative burden.
- Invoice Discounting: Use invoices as collateral to secure a loan; retain control over customer relationships and collections.
Common Forms of Receivables Finance Products
- Loan against assets or asset-based lending (ABL): the lending of money against assets such as inventory, receivables and other assets as collateral, also often known as borrowing base facilities.
- Buyer’s supply chain finance (SCF or reverse factoring): supply chain finance (SCF) programmes to which suppliers sign up to typically leverage the credit rating of their buyer for cheaper financing rates and additional liquidity.
- Receivables securitisation: generally suitable for a relatively granular and diverse pool of customer receivables of at least $50-75M+ and preferably without significant customer concentrations (although structural changes such as insurance can be available to deal with this). The structure often uses an SPV to buy and sell receivables in order to obtain true sale treatment from the originator. Securitisation is a key tool used by Channel since its founding in 2007, with over $25 billion of cumulative funding generated from this by Channel in the UK, EU, the US and the GCC.
- Receivables portfolio purchase: appropriate for a somewhat more diverse pool of customers and typically uses credit insurance for risk mitigation. The funder may restrict funding availability for debtor names up to credit insurance limits. Factoring and invoice discounting facilities tend to fall under this category.
- Receivables purchase or monetisation: suitable for a concentrated customer pool of only a few names wherein the credit risk analysis is generally on a customer name-by-name basis. Consider this product for even part of your accounts receivables portfolio, which may have a concentrated profile.
Channel’s Expertise
Channel brings an 18-year track record in asset-backed lending to the receivables finance market. Since inception in 2006, we have managed $25 billion of private ABS activity, focusing on short-term lending secured by receivables, inventory, payables and structured ABS for speciality finance lenders across Western Europe, North America, the GCC and Developed Asia.
Our specialist expertise encompasses receivables finance, supply chain finance, specialty finance and securitisation, with particular emphasis on short-dated assets. We focus on unlevered, collateralised loans with approximately one-year average tenor, backed by tangible assets. Our proprietary technology platform supports origination, underwriting and monitoring capabilities, enhanced by robust credit protections including over-collateralisation, first-loss policies and insurance structures.
Get in touch via the Contact page to discuss Channel’s asset-backed lending solutions.
About Channel
Channel is a leading global alternative asset manager with deep industry expertise that deploys private capital across asset-based lending solutions to the innovation economy and specialty finance sectors. Since 2007, our investing expertise has served the financial return needs of our clients and provided businesses with innovative debt capital solutions for growth. As of March 31, 2025, Channel had approximately $25 billion in cumulative capital invested and facilitated financing in over 30 countries. For more information, please visit www.channelcapital.io.
