Invoice Financing – Turning Unpaid Invoices into Cash Flow

Waiting for customers to pay their invoices can slow down your business. If your money is tied up in unpaid bills, invoice financing can help you access cash without taking on new debt.

This type of funding lets you borrow against outstanding invoices or sell them to a lender for fast payment. It’s especially helpful for businesses that serve other businesses (B2B) and deal with slow-paying clients.

What Is Invoice Financing?

Invoice financing is when a lender gives you a cash advance based on your unpaid invoices. There are two main types:

1. Invoice Factoring: You sell the invoice to a lender (called a factor), and they collect payment from your customer directly.
2. Invoice Financing (also called accounts receivable financing): You keep control of collecting payment, but the lender gives you an advance now, based on the invoice amount.

In both cases, the goal is the same: get cash now instead of waiting 30, 60, or even 90 days for a client to pay.

How It Works

Let’s say you’re owed $20,000 from a client. Instead of waiting to get paid:

• You give the invoice to a lender
• They advance you 70–90% of the invoice upfront
• When the client pays, you get the remaining amount minus fees

This gives you access to working capital when you need it most.

When to Use Invoice Financing

Invoice financing is helpful when:

• You have long payment terms (net 30, net 60)
• Clients are reliable but slow to pay
• You’re growing fast and need more cash on hand
• You want to avoid high-interest loans

Industries like manufacturing, staffing, wholesale, and professional services use this option often.

Pros

• Fast access to cash (sometimes in 24 hours)
• No need for collateral beyond the invoice
• Approval focuses more on your client’s credit than yours
• Can be used as needed, not all the time

Cons

• Fees reduce your total revenue
• May seem unprofessional if the factor contacts your clients directly
• Not ideal for businesses with few or no invoices
• Can become expensive if used often

Costs and Fees

Fees vary by lender but often include:

• A percentage of the invoice (1% to 5%)
• Weekly or monthly charges if the invoice goes unpaid
• Service fees (especially with factoring)

Always check the total cost before signing.

What Lenders Look For

Lenders usually care more about your clients than you. They’ll want to see:

• Quality of your client list
• How reliable your clients are in paying
• Age of the invoices (older than 90 days may not qualify)
• Your invoice records and business history

You’ll also need to prove the invoices are legitimate and not disputed.

Is It a Loan?

Not exactly. You’re getting an advance on money already owed to you. There’s no long-term debt, and you don’t have to make monthly payments like with a traditional loan.

That said, factoring is more like selling the invoice, while invoice financing is more like borrowing against it.

Tips for Using Invoice Financing

1. Only finance invoices from reliable customers
2. Watch the fees — they can add up fast
3. Don’t use it as a regular funding method unless needed
4. Make sure your contracts allow for assignment of invoices
5. Choose a lender with transparent terms and good service

Final Thoughts

If your business is strong but your clients are slow to pay, invoice financing can keep your cash flow steady. It’s a fast, flexible way to unlock money you’ve already earned. Just be careful with fees, and use it when it makes sense for your cash cycle.