Borrowing against unpaid dealer invoices

How a manufacturer can raise cash against unpaid dealer invoices, the difference between invoice discounting and factoring, and how to record it.

By Achekam · 11 October 2026 · 4 min read · For Manufacturing businesses in South Africa, Nigeria, Kenya

A manufacturer that sells through dealers on account carries a strange kind of wealth. The order book is full, the products have shipped, the invoices are out. On paper the business is doing well. Yet the raw material supplier wants paying on Friday, wages are due at month end, and the dealers will settle in their own time.

The money owed by dealers is an asset, and lenders will advance cash against it. The two common ways of doing so, invoice discounting and factoring, sound alike and are often confused, but they work differently and suit different situations. This article explains both, what a lender will look at, and how the advance shows up in the books.

Why profitable factories run short of cash

ACCA warns that many businesses that appear profitable are forced to stop trading because they cannot meet short-term obligations when they fall due. Manufacturers are especially exposed. Materials are paid for before production, production takes time, and the dealer pays weeks or months after delivery.

ACCA also explains that the size of the trade receivables balance depends on three things: the value of credit sales, the period of credit given, and how efficiently the business bills customers and collects overdue accounts. Only the first of those is a sign of success. The other two are choices, and before borrowing against receivables it is worth asking whether shorter terms or firmer collection would release some of the cash without paying anyone interest.

Receivables as security

Investopedia notes that receivables can be used as collateral to secure a loan that helps a company meet its short-term obligations. The lender is effectively lending against the dealers' promise to pay, so it cares as much about who owes the money as about the manufacturer itself.

Invoice discounting and factoring compared

ACCA draws the distinction clearly:

Invoice discounting in practice

Suppose a large retail chain has ordered an unusually big consignment for a promotion. The invoice is sound, but its payment terms are long and the factory needs the cash now to restock materials. Invoice discounting lets the manufacturer borrow against that one invoice, or a few like it. The business keeps running its own sales ledger: it still sends the statements, still receives the payment, and repays the lender when the dealer pays.

Factoring in practice

Factoring, as ACCA describes it, is an ongoing arrangement rather than a one-off. It suits a business whose funding gap is permanent, typically one that is growing fast and whose receivables grow with it. Because the arrangement continues, check in the agreement who deals with your dealers and how they are told about it.

Read any agreement closely for who carries the loss if a dealer does not pay, what fees and interest apply, and how the arrangement can be ended. Those terms also decide how it is recorded in the books.

What the lender will want to see

Any lender advancing money against receivables starts with the aged debtors list. In Achekam, receivables are aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals. A lender will typically look at:

• how much of the book is current and how much is overdue;
• which dealers are in the older columns, and for how long they have been there;
• whether a few dealers account for most of the balance; and
• whether disputed invoices or credit notes are waiting to be issued.

A clean aged debtors list strengthens your position before you ask. Chase the old balances, issue the credit notes you owe, and settle disputed invoices first. A lender looking at a list full of old disputed items will lend less against it, or not at all.

Recording the advance and its repayment

The advance is borrowed money, not income, and should never be recorded as a receipt against a dealer's invoice.

For invoice discounting, the entries usually look like this, in words:

1. When the lender advances the cash: a manual journal debits the bank account and credits a liability account for the invoice finance, which you add to your chart.
2. When the dealer pays: record the payment against the dealer's invoice as normal. Achekam records customer payments against one invoice or spread across several; a part payment leaves the invoice part-paid, and any extra is held on the customer's account.
3. When you repay the lender: a manual journal debits the liability and credits the bank. Fees and interest go to a finance cost account.

Achekam refuses a manual journal that does not balance or is dated in a closed month, and a posted journal is corrected only by reversing it, so the history of each advance and repayment stays visible. If a dealer's payment was allocated to the wrong invoice, a receipt can be re-allocated; administrators can refund or reverse it.

Factoring can be recorded differently, depending on whether the business remains liable if a dealer does not pay. Agree the treatment with your accountant before the first advance, not after.

To see how invoice finance fits your wider cash position, a rolling 13-week cash forecast puts the advance and repayment dates beside wages and supplier payments. The way dealer invoices are created in the first place is covered in dealer price lists and waybills.

Before you sign

ACCA's article on managing accounts receivable sets out invoice discounting, factoring and the other tools for managing what customers owe. Run your aged debtors list today, deal with the oldest items, and only then decide whether a one-off advance or an ongoing facility fits the gap you actually have.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.