Question 1

What is invoice financing?

Accepted Answer

Invoice financing (also called accounts receivable or A/R financing) allows a company to receive early payment on their outstanding invoices. This type of financing is a great option to free up cash that is currently tied up by unpaid invoices. A company using invoice financing commits some, or all, of its outstanding invoices to a funder for early payment, in return for a fee. The invoices act as collateral for the loan or line of credit.

Question 2

How does invoice financing actually work?

Accepted Answer

Invoice financing, or accounts receivable financing, generally works like this (this is different than invoice factoring, discussed below):    - Select the invoices you want to finance.   - Apply with an invoice financing company.    - The lender will advance you a portion of the face value of the invoices, usually 80% to 90%, but sometimes even up to 100%.    - Use the funds as you want for your business expenses. The lender will charge a fee, either weekly or monthly, until your customers pay the invoices.    - When your customer pays the invoice, you pay the lender back with any remaining fees owed.

Question 3

What is invoice factoring?

Accepted Answer

With invoice factoring, a business actually sells their invoices receivable to a factoring company. Selling receivables means the factoring company assumes control of the invoice, and the business’s customers make their payments to the factoring company, rather than the business itself. After customers pay their bills, the factoring company collects a fee before passing along the remaining amount to the owner.

Question 4

What’s the difference between invoice financing and factoring?

Accepted Answer

The main difference between invoice factoring and invoice financing is which party is responsible for collecting on the unpaid invoices. With invoice financing (also called accounts receivables or A/R financing), you will typically retain full control of your collections, not the invoice financing company. With invoice factoring, the factoring company purchases the unpaid invoices and takes over the collections process.

Question 5

Which is best for you - invoice financing or factoring?

Accepted Answer

Factoring is a more common solution for small and mid-size companies, while larger businesses more often use invoice financing. Businesses with limited credit history may be more likely to qualify for invoice factoring than financing, as the credit quality of the business’s customers would be more important than the credit history of the company itself, particularly in factoring. Invoice factoring is generally more expensive than invoice financing, although time to funding may be faster.

Question 6

Do I need to provide collateral?

Accepted Answer

With accounts receivable financing, your unpaid invoices serve as collateral so you’re not required to provide additional collateral. Because the invoices serve as collateral, accounts receivable financing can be a great solution for borrowers with bad credit. Financing companies won’t be as interested in your credit history - they are more focused on the quality of your invoices.

Question 7

Do I need to have good credit?

Accepted Answer

Good news! With this type of financing, your credit is not as important as with many other types of financing. This is because the financing company is more focused on the credit of the company that owes you money, as that’s the main factor that determines how likely an invoice is to be paid.

Invoice (A/R) Financing

Turn outstanding invoices into cash - fast.

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Based on Your Uncollected Invoices

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