How Invoice Financing Works

Invoice financing is a form of asset-based lending where your company’s accounts receivable are used as collateral. Instead of waiting for customers to pay their invoices, you can access a percentage of those funds upfront. This differs slightly from invoice factoring, where receivables are sold and the factoring company collects directly from your customers.

Can My Business Afford Invoice Financing?

To determine affordability, you’ll need to review interest rates, term agreements, and total repayment costs. A simple calculation involves:

• Inputting the total amount you wish to borrow
• Estimating the factoring fee (usually 1%–3% of invoice value)
• Applying repayment terms (weekly or monthly)
• Calculating total repayment and overall loan cost

Using these numbers, you can compare repayment amounts across different lenders and terms, whether short-term (12 months) or slightly longer (18 months).

Understanding Your Results

Once calculated, your results will outline the loan cost, repayment schedule, and weekly/monthly payment obligations. This helps you determine whether your cash flow can handle the additional debt and which financing option offers the best value.

Our loan calculator can provide accurate estimates so you can test different scenarios before making a final decision.

Pros and Cons of Invoice Financing

Like any financing method, invoice financing comes with both advantages and challenges:

• Pros: Quick cash access, minimal paperwork, and funds available within the same day. Interest rates are relatively low (typically 1%–3%), and the only requirement is having outstanding invoices.
• Cons: Interest rates can climb higher than traditional loans, frequent repayments (weekly/monthly) are required, and the combination of higher rates plus frequent payments may strain cash flow in the long term.

Comparing Invoice Financing Options

If you’re evaluating multiple offers, compare each based on loan amount, APR, repayment terms, and total cost. Choose a repayment schedule that fits your business operations and ensures manageable payments.

Most importantly, confirm that your company is financially strong enough to manage additional debt. Invoice financing is best used as a tool to stabilize cash flow and fund short-term needs, not as a long-term dependency.