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What Is Invoice Financing?

Invoice financing, sometimes called accounts receivable financing, is a form of asset-based financing in which business owners receive an advance of capital in exchange for their unpaid invoices. Typically, invoice financing companies can advance you up to 85% of the value of your invoices and you receive the remaining 15% (minus fees) when your invoices are paid.

Because the invoices themselves serve as collateral on the capital you borrow, invoice financing is often easier to qualify for than other types of small business loans. In this way, invoice financing is a great funding option for B2B and service-based businesses—as it alleviates cash flow problems due to unpaid customer invoices.

Invoice Financing Details

Max. Advance AmountRepaymentFactor FeeSpeed
Up to 100% of invoice valueUntil the customer pays the invoiceApprox. 3% processing fee, plus factor fee (~1%) each week until invoice is paidAs little as 1 day
Green checkmarkPros
  • Fast access to working capital
  • Alleviates cash flow problems due to unpaid invoices
  • Easier to qualify for than other types of business financing
  • Invoices themselves serve as collateral
  • Low cost if your customers pay on time
Red X markCons
  • Can have higher fees than other types of financing
  • Difficult to evaluate cost upfront since fees are based on time it takes customer to pay
  • Can be expensive and risky if customers are late to pay, or don’t pay at all
  • Specific to B2B and other invoice-based businesses, not really an option for most B2C businesses

The Best Invoice Financing Companies


Best for: Easier access to affordable financing to free up cash flow.

altLine Factoring

Best for: Fast access to invoice factoring for businesses who need at least $15,000 per month in factoring

How Does Invoice Financing Work?

Whereas many business financing products are structured as term loans, (where you receive a lump sum of capital that you pay back, with interest, over time), invoice financing is different. As we mentioned in the definition above, invoice financing is a form of asset-based financing—in which you receive an advance of capital for your unpaid invoices.

This being said, although it’s possible to receive up to 100% of the value of your unpaid invoices, most invoice financing companies will advance you up to 85%, holding the remaining 15% until the invoices are paid. 

When your customer pays the invoice, you receive the remaining 15%, minus the lender’s fees. Typically, you’ll be charged a processing fee (about 3%), as well as a factor fee. The factor fee, usually about 1% to 2%, is charged on the total value of the invoice for each week it takes the customer to pay.

With invoice financing, therefore, you pay for fast and immediate access to your capital, freeing up your cash flow that’s being held up in unpaid invoices.

Invoice Financing Example

To give you a better sense of how invoice financing works, let’s break down an example. This example will also help you understand how much invoice financing costs.

Let’s say you have a $100,000 invoice with 30-day terms.

You find a financing company that’s willing to advance you 85% of that amount—$85,000—and hold the remaining $15,000 in reserve.

The company is going to charge a 1% factor rate for each week it takes the customer to pay the invoice, as well as a 3% processing fee. In this case, it takes the customer two weeks to pay the invoice, so you’ll be paying 2% in factoring fees ($2,000), plus the 3% ($3,000) processing fee. 

Therefore, of the $15,000 held in reserve by the financing company, you’ll only receive $10,000 ($15,000 – $5,000 in fees). All in all, you’ve paid 5% in fees, $5,000 of the original invoice amount, to get early access to your capital before the customer paid the invoice.

Now, $5,000 may seem like a steep price to pay, but ultimately, that comes down to your business’s financials.

Types of Invoice Financing

Although invoice financing usually works as we’ve just described, there are a few variations on this form of funding—including invoice factoring and accounts receivable lines of credit—that are important to explain.

Invoice Factoring

Invoice factoring and invoice financing are often used interchangeably, however, there are differences between these two types of funding. In short, invoice factoring is a type of invoice financing and functions much in the same way, where a lender advances you capital that is collateralized by your unpaid invoices.

The difference, however, is that with invoice factoring, you’re actually selling your invoices to the invoice factoring company. In this way, whereas traditional invoice financing means you pay back the advance of capital you borrowed, plus fees, invoice factoring means you’re selling your invoices to a factoring company at a discount.

In most cases, this also means that the invoice factoring company is the one collecting payments from your customers.

Accounts Receivable Line of Credit

An accounts receivable line of credit, on the other hand, is a type of invoice financing in which you use your unpaid invoices to finance a credit line. In this case, the line of credit is backed by your invoices and the amount you receive on the line is usually up to 85% of the value of those invoices.

Unlike traditional invoice financing or invoice factoring, however, where you’re given a full advance of the value of your invoices, in this case, you have access to a credit line that you can draw from as needed—just like any other business line of credit.

With an accounts receivable line of credit, therefore, you pay an interest rate based on your balance, and when a customer pays their invoice, the amount is deducted from your current balance. In addition, some lenders will charge you a draw fee, every time you pull on the credit line.

This being said, in most cases an accounts receivable line of credit is like traditional invoice financing (as opposed to factoring), in which you retain ownership of your invoices and are responsible for collecting customer payments.

Pros and Cons of Invoice Financing

Of course, as with any type of funding, invoice financing will not be right for every business. First and foremost, by the nature of this business financing, it’s best-suited for B2B and service-based businesses and is often used by those in industries like retail, manufacturing, healthcare, real estate, and consulting.

This being said, if you’re trying to decide if invoice financing makes sense for your small business, you can reference the pros and cons below:


  • Fast access to working capital: Since invoice financing is backed by your accounts receivable, this type of financing is often very quick to fund, especially when working with alternative lenders who offer an online-based, streamline application process. You may be able to access funding in as little as one day.
  • Alleviates cash flow problems due to unpaid invoices: If you’re running short on capital to meet upcoming expenses, like taxes or payroll, invoice financing gives you the ability to free up cash flow to cover those expenses.
  • Easier to qualify for than other types of business financing: Although the requirements you need to meet for invoice financing will vary based on the small business lender, in general, you’ll find that because the financing is backed by your invoices, lenders will be much more flexible with qualifications. Instead of solely focusing on your credit score and financials, lenders will also look at your customers and their payment history.
  • Invoices themselves serve as collateral: As we just mentioned, your invoices serve as collateral with this financing, which not only makes it easier to qualify for, but makes it more likely that you won’t be asked to put up other assets, like real estate or inventory, as collateral.
  • Low cost if your customers pay on time: Although invoice financing can be expensive compared to other types of business loans, it’s pretty affordable if your customers pay on time, or even early. Whereas you’d pay interest on a traditional loan for the entirety of the term, you’ll only pay fees on invoice financing as long as the invoice is outstanding.


  • Can have higher fees than other types of financing: Invoice financing can be affordable in a certain sense, but overall, the fees you end up paying are often more expensive than you’d find with other types of loans. Additionally, depending on the lender, you might find you have to meet monthly minimums or pay extraneous fees.
  • Difficult to evaluate cost upfront: Although you can use an invoice financing calculator to estimate costs to a certain extent, it’s difficult to evaluate exactly how much invoice financing costs ahead of time. Because the final fees you pay are based on the time it takes your customer to pay, the ultimate cost of this financing will vary.
  • Can be expensive and risky if customers are late to pay, or don’t pay at all: When it comes down to it, if your customers are late to pay their invoices, this type of financing will end up being very expensive. Some financing companies charge sizable late fees or increase the rates for each week it takes the customer to pay. On the other hand, if your customer doesn’t pay at all, you’ll usually be responsible for repaying the lender in full—which could be detrimental to your cash flow.
  • Not really an option for most B2C businesses: Finally, as we mentioned above, accounts receivable financing is very specific—you have to actually have outstanding invoices to apply for invoice financing. Therefore, if you’re a B2C business or subscription-based business, it’s very likely that this financing won’t be an option for you.

Best Invoice Financing Options

So, now that you know how invoice financing works and the possible advantages and disadvantages of using it, you’re likely wondering where to get this type of funding.

This being said, although there are a number of lenders and companies that offer invoice financing, you might start your search with the top options below:

Financing Company Funding Amount Interest Rates Speed How to Qualify Best For
Up to $5 million
0.25% to 1.7% per week
Average of two to seven days
530 minimum credit score; three months in business; $120,000 annual revenue
Fast and easy financing; startups or businesses with average credit
Up to $4 million; minimum of $15,000 per month
0.5% to 3% for the first 30 days; maximum of 5%
As fast as two days
500 minimum credit score; ability to factor $15,000 worth of invoices per month
Monthly contracted financing; business owners with lower credit
Up to $15 million
Starts at 0.75% per month
As fast as 24 hours
Specifics not available
Fast funding, flexible solutions including those that accommodate businesses with previous financing issues
Up to $1 million
Starts at 1.2%
As fast as 72 hours
Specifics not available
Larger businesses who can access the most affordable rates
Up to $5 million
Varies based on your credentials and agreement
As fast as five days, average of seven
500 minimum credit score; one year in business; $100,000 annual revenue
Financing for larger invoices; ability to upgrade to additional products

How to Qualify for Invoice Financing

As we’ve mentioned, one of the benefits of invoice financing is that it’s much easier to qualify for than other types of business loans. At a very basic level, any small business with a business-to-business model is eligible for invoice financing, as long as they currently have outstanding receivables.

This being said, however, some of the requirements that you’ll need to meet for invoice financing will vary based on the individual lender or company. Generally, invoice financing companies will focus on the quality of your invoices, as well as your customers’ repayment history, when determining whether or not you qualify for financing.

Although traditional business loan requirements may not be as important with invoice financing, it’s very likely that lenders will look at factors like your credit score, time in business, and annual revenue. In this case, as with all types of financing, the stronger your business’s qualifications, the more likely you are to access invoice financing with the most ideal rates and terms.

How to Apply for Invoice Financing

Finally, if you think invoice financing can meet your needs, you’ll want to find the right lender and start the application process.

Luckily, invoice financing applications are usually fast and simple, especially compared with more traditionally structured loans, like SBA loans. As we’ve mentioned, because your invoice or invoices will largely determine the amount and terms of the financing you qualify for, your invoices themselves will be the most important part of the application process.

Of course, depending on the lender, you may also be required to submit additional information about your business and finances, such as:

  • Driver’s license
  • Voided business check
  • Business bank statements
  • Business financial statements
  • Personal and business credit scores

In general, you’ll be able to complete an invoice financing application online, in just minutes. To this end, some companies, like BlueVine or Fundbox, allow you to connect your business’s accounting software, as well as other tools, to their platform so that they can more easily evaluate your qualifications.

Many invoice financing companies can make you an offer and transfer you funds within a few days.

The Bottom Line

At the end of the day, invoice financing is an ideal solution for B2B or service-based businesses who are looking to free up cash flow tied in unpaid invoices. Compared to many financing products, invoice financing is generally easy to qualify for and fast to fund—with many alternative lenders offering online-based, streamlined application processes.

It’s important to remember, however, that invoice financing can be expensive, especially when your customers are late to pay. Therefore, before you opt for this type of financing, you’ll want to consider and compare all of your options to ensure that you find the best, most affordable solution for your business.

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