Invoice Financing Explained
Turn unpaid invoices into working capital. Learn how invoice discounting and factoring work and when each fits.
Many businesses wait 30, 60 or even 90 days to be paid after delivering goods or services. Invoice financing lets you borrow against those unpaid invoices so cash is available now instead of when the customer pays.
How it works
- You raise an invoice to a customer on credit terms.
- You submit the invoice to a financier, who advances a large part of the invoice value.
- When the customer pays, the financier settles the remaining balance after charges.
Invoice discounting vs factoring
In invoice discounting, you usually stay in charge of collecting from your customer and the arrangement can be confidential. In factoring, the financier typically manages collections as well. Exact structures differ by product and lender.
Who it suits
- Businesses selling to larger, creditworthy buyers on credit terms.
- Manufacturers, traders and service providers with long payment cycles.
- Growing companies whose cash gets stuck in receivables.
What affects approval and cost
- The credit quality and payment record of your customer, not just your own.
- The size, age and quality of the invoices.
- Your trading history and documentation, such as invoices, purchase orders and GST filings.
Related products
Loanbazaar lists receivable-based products such as invoice discounting, factoring, bill discounting and reverse factoring under its Invoice and Receivable-Based Funding and Supply Chain Finance categories.
Frequently asked questions
What is invoice discounting?
It is borrowing against unpaid invoices so you receive most of the invoice value early, then settle when your customer pays.
Is invoice financing a loan?
It is a form of short-term working capital finance secured by your receivables. The legal structure depends on the product.
Does my customer need to know?
In some structures, such as confidential invoice discounting, the customer may not be notified. In factoring they usually are.
This page is for general information only and is not financial, legal or tax advice. Loanbazaar is a loan distributor and connects businesses with lending partners; it does not lend directly. Terms, eligibility and approval are decided by the lender.