February 27, 2018

Guide to Invoice Financing for Business Owners

What is Invoice Financing?

 Invoice financing is a working capital option that gives businesses the opportunity to receive the money from outstanding invoices immediately, through a financial services company. Essentially, the financial services company lends the money to the business, using the outstanding invoices as collateral. When the invoices are paid, the loan is repaid, with interest. The result is that your business will have funds available to pay for monthly expenses such as rent payments, employee salaries, and office supplies.

Who Typically Qualifies

Typically, this service is a good option for small businesses without a large cash reserve. Invoice financing can also be useful for businesses that don’t have a strong credit score, and may not be great candidates for other types of business loans. Invoice financing works well for many business owners, but it isn’t the best solution for every business. Those that are struggling to cover expenses month-to-month should not consider invoice financing as a long-term solution to an ongoing problem.

Applying and Utilizing

The process for applying for invoice financing is relatively easy. Since pending invoices are used as collateral, there is less risk involved for lenders than there would be with an unsecured business loan. To apply, you’ll be expected to complete an application and provide any necessary bank statements and accounting documents, showing your business’s current finances and expected income. If your application is approved, you’ll need to submit unpaid invoices, so that you can receive a loan to cover expenses. Then, the invoice financing provider will approve the invoices and transfer the amount of a certain percentage of the total value of the invoices. That percentage will depend on the terms of your lender.

The Payback Process

Invoice financing should be considered a short-term borrowing option. While having funds available without waiting for clients to pay invoices is a great benefit, remember that the service comes with terms and conditions. Pay attention to the repayment terms set up by your lender. This will explain how much time you’ll have to repay the money owed, along with interest accrued. The interest rate you’ll pay will depend on your lender, and could also depend on your business’s financial health and history. Repayment of the invoices may be done in one of two ways. In the first scenario, clients would pay their invoices to your company, as they would normally. You would use that money pay your lender. The second scenario would change the way that customers pay. Your lender would set up a separate account, and clients would pay into that account when settling their invoices. Then, the lender would have access to that account and take the money directly from clients, rather than going through your business. Remember to ask about any additional fees and terms that might come with your invoice financing agreement. These might include weekly fees during the repayment process, or a discount for making payments early.


For those businesses that qualify, there are many benefits to invoice financing. It can be an excellent alternative to traditional business loans and lines of credit. It’s also an option that provides immediate working capital, allowing you to cover company expenses without going into debt. However, it should be chosen with caution. Ensure that you’ll be able to repay the money owed within the time-frame agreed upon, to prevent paying excessive fees or getting trapped in a cycle of borrowing without the ability to repay debts. Consider the immediate and long-term needs and abilities of your business to determine if invoice financing is the right choice for you.