What is Invoice Financing?

Invoice financing is a form of short-term borrowing for businesses based on their accounts receivables or outstanding invoices. It allows companies to get immediate access to cash trapped in invoices that customers have not yet paid.

It works as follows:

• The business raises invoices on its customers for goods/services delivered and submits them to the invoice financier.
• The financier verifies and evaluates the invoices to check customer creditworthiness.
• The financier then provides advance funding of up to a specific percentage of the invoice value to the business, with the remaining paid on the realisation of the invoice.
• The business gets operating liquidity to maintain cash flows while the financier collects the invoice amount directly from the customer on the due date.
• The financier deducts the initial funding provided and fees charged and passes on the balance amount to the business.
• The business does not need to wait for 30, 60 or 90 days or more to get paid by customers.

Invoice financing allows flexibility to draw down on invoices as needed, instead of taking a large lump sum loan. Costs include interest rate on funds used and fees for the amount of invoices submitted and days outstanding.