What is debtor financing?

Debtor financing is a type of financing in which a company borrows money based on the value of its outstanding accounts receivable. The company sells its invoices to a finance or factoring company in exchange for an upfront payment on the invoice amount, minus a fee for financing costs. In this way, the company can access the funds it needs to continue its operations and grow more quickly, rather than waiting for customers to pay their invoices. Debtor financing can be particularly beneficial for companies that face longer payment terms or irregular customer payments. It is an alternative source of financing to traditional bank loans or business loans.