How Does Invoice Financing Work?

Over 600,000 new businesses start in the US each year. Most of these businesses require external financing of some sort, whether at the point of inception or to fund growth at some later point.

When people think of business finance, they often think of either selling equity or taking out a loan. However, there are other options available.

Read on as we explain what invoice financing is and how you can leverage it to get ahead in your business.

What Is Invoice Financing?

Invoice financing is a way to unlock liquidity in invoices that you might not be receiving payment for a considerable period. If debtors owe money to your business that you need sooner than they’ll be able to pay it, you can borrow money against their invoices.

An invoice financing company will lend you money, allowing your invoice to stand as security. This allows you to use the money from your invoices straight away, rather than having to wait.

This is not the same as invoice factoring, which involves selling your invoices to a factoring company.

The Advantages of Invoice Financing

There are many reasons why invoice finance is a better option for many businesses. We’ve looked at some of the most important here.


Every business needs liquidity to keep its head above water. However, when several invoices begin to mount up, it can be difficult to keep cash flowing.

Invoice financing allows you to keep a steady cash flow in your business. You won’t always be able to rely on other parties paying their invoices quickly, but invoice financing can ensure that this doesn’t affect your liquidity.

Fast Approval

When you look for financing through a traditional credit facility, approval can take a long time. Financial institutions need to take the appropriate steps to ensure that you’ll be able to repay them, like examining your business fundamentals and your credit rating.

With invoice financing, however, this is less of an issue. Providers can see the invoice you’re using as security, so they know that repayment is assured.

Facilitates Credit Sales

Credit sales are a great tool for businesses, as they encourage buyers to buy more. However, they can cause liquidity issues.

With invoice financing, you won’t have to worry about credit sales leaving you cash-poor.

How to Apply for Invoice Financing

Invoice financing applications are generally straightforward. As noted above, approval is much quicker than it would be with a traditional bank loan.

You will simply have to approach an invoice financing company and fill out an application. Most invoice financing nowadays takes place online, meaning that you won’t even need to schedule a physical appointment.

Getting the Right Finance Solution for Your Business

Almost everyone in the business will need financing at some point. Choosing the right type could be instrumental in your success.

Invoice financing is a source of funding that is becoming increasingly popular among business owners, and not without good reason.

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