Here’s a story that a CFO told us anonymously, about inheriting a funding clusterf*ck.

We’ll call him Roy.

Roy joined a company that had taken on $30 million in receivables finance (RF), an ongoing credit facility secured against its unpaid invoices.

But costs and cashflow were out of control, and well... you know the rest. In this story Roy helped them scramble to find a purchaser before it folded completely.

“If you have systemic cash issues, it’s tempting to use RF, but that’s the worst time to do it,” Roy told me. “They were maxing out the facility on million-dollar invoices in different countries. But they used it incorrectly [to plug cash gaps everywhere, not just to fund working capital]. They also didn’t remit some settled invoices to the bank, and reporting was poor.

“The people who understood the complex facility rules and how to manage it had left. Controls were uneven across subsidiaries.”

The banks were eventually repaid. But the misused and mishandled debts cast doubt over the sale, and put a big dent in the ultimate purchase price.

Using RF to plug structural losses is like fixing a leaking bath by turning the tap on... with dirty water coming out. It’s an object lesson in how not to use this kind of financing.

RF is a type of funding, mostly for B2B businesses, that lets them secure cash by borrowing against unpaid invoices. It’s been around for thousands of years, but it’s also constantly changing with new providers and terms emerging. Recent innovations include buy-now-pay-later financing (for consumer businesses), and tokenized invoice/on chain finance. 

If you offer credit terms to customers, you can use RF to cover immediate, volatile, or seasonal costs while waiting for clients to settle their accounts. RF fills a gap for companies that can't qualify for traditional bank finance. It’s flexible, relatively simple to obtain, and it can scale with your turnover.

RF can take a lot of different forms, but here are a few of the most common:

Lenders often build RF products specifically to suit the accounting treatment that is presentationally ‘convenient’... This means that, to a reader of the accounts who isn't “in the know”, what looks like improved collections and working capital management may actually be a growing debt position.

This is big business. Global value of invoices under factoring, the most common type of RF, hit a record high of €4 trillion in 2025, with particularly big gains in the US and Canada, according to trade body FCI.

Ian Matthews, CFO at fractional provider Third Road Management, said: “More lenders are offering it, so supply is easier. You can plug in your accounting and bank systems, and it does the underwriting in seconds. And the funds are available immediately.”

SMEs often use RF to accept larger orders, extend customer payment terms, and sustain working capital without diluting equity or taking on long-term debt. If you have powerful customers who demand long payment terms, that starves you of working capital – RF can be a lifeline.

Also, a lack of credit history matters less to RF lenders, who are more concerned with your customers’ credit ratings (their security).

Martin Spiller is associate professor at Oxford Brookes Business School, and has worked as a fractional and interim CFO for 25 companies, including his own start-up. 

He said: “My firm was a giftware wholesaler to large retailers. RF helped me grow from zero to £15 million. When you’re buying loads of stock and dealing with retailers who pay on 60 to 120 days, it’s vital. It’s great when you’re growing fast and it’s just a timing tool.”

In 2025, receivables finance was big news. 

Stenn, a trade finance firm based in the UK, collapsed after HSBC pulled their line of credit on  allegations of fraud and money laundering. In August, lenders including BlackRock's private credit arm, were faced with recovering over $500 million after telecoms entrepreneur Bankim Brahmbhatt allegedly fabricated invoices to secure loans. Ultimately, his businesses all filed for bankruptcy. 

Then in September, the collapse of auto parts provider First Brands Group allegedly centered on billions of dollars of factoring liabilities, built on fabricated and double-pledged invoices. The group also didn’t forward receivables once they were paid.

First Brands Group owed about $6.1bn in on-balance-sheet debt. It also carried $2.3bn in off-balance-sheet factoring, which hid its true leverage from lenders and investors.

(The dangers aren't limited to conventional invoice financing. When UK construction giant Carillion collapsed in 2018, it had accumulated more than £700 million in reverse factoring arrangements that masked its true indebtedness, a collapse Secret CFO has written about before).

Insolvency lawyer Phillip Zagotti, an attorney at US-based North Star Law Firm, said he regularly sees abused or mishandled RF in bankruptcy cases:

Scott Baybrook, a former RF lender turned fractional CFO, said: “I’ve seen multiple businesses ‘accidentally’ commit fraud. For instance, trucking companies have to pay for fuel and wages today. They raise the invoice early and draw the cash – happy days. Then there’s a crash on the highway. They miss their delivery slot, there’s no sale.”

Instead of ‘fessing up to the lender and asking for flexibility, they raise another invoice to plug the gap.

“The next day, there are roadworks – the same thing happens. Now they have two invoices they can’t fund. I’ve seen it spiral like that dozens of times,” said Baybrook.

Receivables financing isn't a broken tool in itself, but it’s only really right for businesses with steady dependable growth, a diversified customer base and manageable seasonality. But because it can hide leverage and create dependency, you can’t let your controls bend or falter.

In the coming weeks, we’ll run a part two to share how to run RF with guardrails that are tighter than Rod Stewart’s hot pants.

Here are a few key watch outs before you walk into the boardroom with a proposal to take out receivables financing:

And since you’ve made it this far… I’ve got a treat for you (no tricks, promise).