If your business regularly deals with slow-paying clients and outstanding invoices, you may have significant cash tied up in receivables. Invoice financing unlocks that cash — without waiting 30, 60, or 90 days for clients to pay.
What Is Invoice Financing?
Invoice financing (also called accounts receivable financing) allows you to access cash against outstanding customer invoices. Rather than waiting for clients to pay, you receive an advance — typically 80–90% of the invoice value — immediately. When the client pays, you receive the remaining balance minus the financing fee.
Two Main Types
Invoice Factoring: You sell your invoices to a financing company, which takes over collection. The factor contacts your clients directly to collect payment. This is fully outsourced receivables management.
Invoice Financing/Discounting: You retain control of your receivables and collections. The lender advances against your invoices but your clients don't know you're using financing. More common for businesses that want to maintain client relationships without third-party involvement.
Who Benefits Most From Invoice Financing?
- B2B businesses with large, creditworthy clients who pay on 30–90 day terms
- Businesses experiencing rapid growth that strains cash flow
- Companies with strong receivables but limited credit history
- Businesses that can't qualify for traditional unsecured credit
Cost Considerations
Invoice financing typically costs 1–5% per 30 days of the invoice value, depending on the creditworthiness of your clients, average invoice size, and invoice volume. The cost is justified when the alternative is turning down business because you lack the working capital to fulfill orders.