What is invoice financing?

Invoice financing is a funding method where a business borrows against unpaid invoices. The lender immediately advances a percentage of the invoice value, typically 80 to 90 percent. When the client pays, the lender releases the remainder minus fees. This accelerates cash flow without waiting for client payment cycles. It differs from factoring in that you retain collection responsibility.

Cost considerations

Invoice financing fees typically run 1 to 3 percent of the invoice value per month until payment. On a Net 60 invoice, 2% monthly becomes 4% total cost. Annualized, that exceeds most credit card rates. Compare against alternatives like lines of credit. Invoice financing makes sense when you lack access to credit or need funds faster than banks can approve.

When invoice financing fits

Rapid growth outpacing cash flow is the classic use case. Large client wins requiring upfront staffing create timing gaps. Seasonal businesses bridging slow periods use it tactically. Persistent reliance on invoice financing suggests pricing or collection problems worth addressing directly rather than financing around.