Also called accounts receivable financing, invoice financing allows you to get paid for your outstanding invoices without waitingâin return for a fee.
Invoice financing companies will advance you capital backed up by your businessâs outstanding invoices. This lets you put that money back into your business immediately instead of having to wait for your customers to pay you back. If you regularly suffer from late customers or a sluggish cash flow, invoice financing could be the perfect loan product.
Invoice financing might cost you a bit, but in return it gives you a much more predictable cash flow. If you need capital to meet expenses or youâre running low on money because of a late-paying customer, then accounts receivable financing could help bridge those gaps. A reliable inflow of cash might be worth the cost for your small business.
If you agree to use an invoice as collateral for a loan, your financing company will usually advance you around 85% of your invoiceâs total value. The other 15% will get held by your lender and reduced by some of their fees, but youâll receive whatâs left over once your customer pays their invoice. There are other kinds of invoice financing as well, but this is the most common structure.