Invoice Financing
Also called: bill discounting, invoice discounting, receivables financing
What is Invoice Financing?
Invoice financing, also called bill discounting or receivables financing, is borrowing against unpaid customer invoices: a lender advances a percentage of the invoice value now and settles when the customer pays, keeping a fee.
When invoice financing makes sense
It converts accounts receivable into cash without a conventional term loan, which makes it attractive when a business is profitable but cash-tight — a large order to fund, or a customer on 90-day terms you cannot renegotiate.
What it really costs
Expressed as an annual rate, invoice financing is usually dearer than a working capital loan or an overdraft, because the fee is charged over a short advance period. Always convert the fee to an annualised figure before comparing.
The cheaper fix first
Compare it against solving the underlying problem. Cutting days sales outstanding by 15 days through consistent dunning costs nothing and permanently improves the position, where financing rents the cash every cycle.
Frequently asked questions
Commercially it behaves like one — you receive cash now and repay from the customer's payment, with a fee. Treatment depends on whether the receivable is sold outright or pledged.