Accounts receivable financing is one of the oldest financing forms in the world – its roots extend back to ancient Mesopotamia. Today it is the fastest-growing financing form among SMEs in Finland. According to the Bank of Finland, the volume of accounts receivable financing is approximately 25 billion euros per year, growing at 15 percent annually. Yet many entrepreneurs are unfamiliar with the differences between the various models.
Accounts Receivable Financing – Overview
Accounts receivable financing is an umbrella term covering all financing forms where a company's open sales invoices serve as the basis for financing. The basic principle is simple: you have receivables that will convert to cash in the future – the financier accelerates this process by providing the funds in advance.
Accounts receivable financing is particularly suited to companies with B2B invoicing, reliable customers, and longer payment terms. It does not require traditional collateral because the receivable itself serves as the basis for financing.
According to Statistics Finland, the number of factoring and invoice financing clients has grown 28% in three years. The Federation of Finnish Enterprises' survey shows that 45% of SMEs are interested in accounts receivable financing.
Financing Models Compared
1. Traditional Factoring
Factoring is a full-service solution where the company sells all or an agreed portion of its accounts receivable to a finance company. The financier typically handles the accounts receivable ledger, payment monitoring, and debt collection. A factoring agreement generally covers the entire invoice flow or all invoices from a specific customer.
Factoring features:
- Full-service: ledger, monitoring, and collections are included in the price
- Entire invoice flow or agreed portion is financed
- Open model – the customer is aware of the financing
- Contract-based: monthly fees and commitment period
- Price: service fee 0.5–2% + interest 4–8% p.a.
- Suits companies with a volume of at least EUR 100,000/month
2. Modern Invoice Financing
Invoice financing is a more flexible version of factoring. You can choose individual invoices to finance without committing your entire invoice flow. The process is digital and fast – an invoice can be financed in minutes. Both confidential and disclosed models are available.
Invoice financing features:
- Selective: you finance only the invoices you choose
- No commitment period or minimum charges with most providers
- Digital process: financing within 24 hours
- Confidential or disclosed model
- Price: 1–3% of the invoice value
- Suits companies of all sizes
Invoice Financing
Flexible accounts receivable financing
3. Invoice Discounting
Invoice discounting is a confidential model where the company receives a credit facility against its receivables. It is closer to a credit facility than a sale of receivables. The company manages its own ledger and collections. Invoice discounting is typically for larger companies with an invoicing volume of at least EUR 500,000 per month.
Invoice discounting features:
- Credit facility-type solution – flexible usage
- Confidential model: the customer is unaware
- The company manages its own ledger and collections
- More affordable than factoring: interest 3–6% p.a. + small service fee
- Requires higher volume and established operations
- Suits companies with a volume exceeding EUR 500,000/month
4. Asset-Based Lending (ABL)
Asset-Based Lending is the broadest form of accounts receivable financing. The loan is secured by the company's entire asset base: accounts receivable, inventory, machinery, and equipment. ABL offers a larger financing facility because the collateral base is broader. It suits large companies or businesses that need significant working capital financing.
ABL features:
- Broadest collateral base: receivables + inventory + fixed assets
- Largest possible financing facility
- Affordable interest: 3–5% p.a.
- Requires comprehensive reporting and auditing
- Suits companies with revenue exceeding EUR 5 million
- More complex setup process
Which Model Should I Choose? Comparison Table
The right model depends on your company's size, needs, and customer base. As an entrepreneur, I have personally used both invoice financing and traditional factoring at different stages of my company's growth. In the early stages, the flexibility of invoice financing was invaluable when I didn't know my monthly financing needs. Later, as volume increased, a factoring agreement provided a more affordable price.
Selection criteria:
- Small company, variable needs -> Invoice financing (most flexible, no commitment)
- Growth company, regular volume -> Factoring (full service, efficient)
- Large company, confidential model -> Invoice discounting (most affordable, independent management)
- Large company, broad collateral base -> ABL (largest facility, lowest price)
Accounts Receivable Financing in Finland – Market Situation
Finland's accounts receivable financing market has grown strongly over the past decade. According to the Bank of Finland, the combined volume of factoring and invoice financing is approximately 25 billion euros per year. Interest among SMEs in particular has grown as the availability of traditional bank loans has tightened.
The market features both traditional bank factoring units (Nordea, OP, Danske Bank) and fintech companies offering more modern invoice financing. Fintech players have brought speed, flexibility, and digitalization to the market, lowering the threshold for using accounts receivable financing.
Risks and Considerations
Accounts receivable financing is a safe financing form, but as with all financing, it is good to be aware of the risks.
Risks to consider:
- Credit loss risk: In most models (recourse), responsibility remains with the company if the customer does not pay
- Cost escalation: If volume fluctuates or customer payment terms lengthen, costs increase
- Dependency: Long-term use can create dependency on financing
- Contract terms: Read the fine print – especially termination conditions and hidden costs
- Customer relationship: The debt collection style of a disclosed model may affect the customer relationship
Practical Tips for Accounts Receivable Financing
With years of experience, I have compiled practical tips for effectively utilizing accounts receivable financing.
Tips:
- Start small and scale up – test invoice financing first with individual invoices
- Compare financiers – request quotes from at least 2–3 providers
- Negotiate terms – prices are negotiable, especially as volume grows
- Monitor costs – calculate monthly how much the financing actually costs
- Combine different models – use invoice financing and factoring in parallel as needed
- Communicate with your accountant – ensure correct accounting treatment from the start
"Accounts receivable financing is an underutilized tool in Finnish SMEs. Many entrepreneurs struggle with cash flow while having hundreds of thousands of euros tied up in receivables. This guide hopefully opens eyes to the alternatives."
Summary
Accounts receivable financing is a broad category covering several different models for different needs. Traditional factoring suits higher volumes and offers a full-service solution. Modern invoice financing is the most flexible and has the lowest entry threshold. Invoice discounting suits larger companies wanting a confidential model. Asset-based lending offers the largest facility with a broad collateral base. The right choice depends on your company's size, needs, and growth stage.
📌 Summary
Accounts receivable financing covers factoring, invoice financing, invoice discounting, and asset-based lending. Invoice financing is the most flexible and has the lowest threshold for SMEs. Factoring suits higher volumes as a full-service solution. In Finland, the volume of accounts receivable financing is EUR 25 billion and is growing 15% per year. Start with invoice financing and transition to a broader model as needed.
Factoring vs Invoice Financing
What is the right choice for your company?
Improving DSO
Shorten your accounts receivable turnover period in practice
