Table of Contents

  • What Is Invoice Financing?
  • How to Get Invoice Financing for Your Small Business
  • The Pros and Cons of Invoice Financing
  • Qualifying for Invoice Financing
  • The Cost of Invoice Financing
  • Best Invoice Financing Lenders
  • Invoice Financing Frequently Asked Questions (FAQs)
  • How to Choose an Invoice Financing Company

For many small businesses, cash shortages often happen while waiting for invoices to be paid. Invoice financing can help you bridge temporary cash shortfalls with instant access to the funds you’re owed.

Invoice financing, also known as accounts receivable financing or invoice factoring, converts assets (invoices) into immediate cash. You receive the money you’re owed by your customers right away and only pay fees while the lender waits for your customer to pay off their debt.


Did you know:

  • 93% of businesses experience late payments from customers
  • 47% of credit sales are paid late
  • Typical payment terms are 27 days, but actual payment periods average 34 days

What Is Invoice Financing?

Generally, invoice financing companies advance businesses up to 80-90% of the accounts receivable value. Until the invoice is paid in full, companies will deduct an overall processing fee and a weekly factor from the reserved portion. 

The remaining balance is then remitted to the borrower in the form of a rebate. 

The financing company typically pays you in two installments:

  • An 80-90% advance of your invoice 
  • The remaining 10-20% (minus fees) once the invoice is paid in full 

How to Get Invoice Financing for Your Small Business

Receiving funds for your invoices involves a quick, simple process.

Follow these five steps:

1. Invoice Your Client

After you’ve provided goods or services to your business-to-business customers, issue invoices with clear repayment terms.

For example, if your payment terms are net 45 days, that means payment is due 45 days from the date of invoice. 

2. Select Invoices for Financing

Select specific invoices to finance. Consider accounts with the following attributes:

  • Newer invoices: You can increase your chances of qualifying if your invoices are new or have only recently gone past due (between 30-90 days).
  • Smaller invoices: Small invoices are less of a risk to lenders for the simple reason that the less a company owes, the more likely it is to pay. 
  • Large, creditworthy companies: Unlike other small business loans, invoice financing companies assess the creditworthiness of your clients rather than your creditworthiness alone. For this reason, it’s in your best interest to select invoices issued to established companies with strong annual revenues and histories of timely repayment.  

3. Lender Advances Percentage of Invoice

Once approved, the invoice financing company issues you a percentage of the funded invoices, known as the advance rate. The amount of the advance depends on many factors, including the size of your transaction, your industry and other risk parameters.

Typically, you can expect to receive 80-90% of the financed accounts receivable value.

4. Factoring Fees Accrue

The financing company deducts a processing fee, typically about 3%, and a fee known as a factor (or discount rate) each week until invoices are paid in full. 

5. Lender Forwards Reserve, Minus Fees

Once your customer’s outstanding invoices are paid, the lender issues you the reserved balance, known as a rebate, minus the fees.

The Pros and Cons of Invoice Financing

While invoice financing is a popular way of financing a small business, it’s important to weigh the pros against the cons before pursuing this funding option.


  • Near-immediate access to cash
    You can be approved in hours and funded as fast as the same day.
  • Easy application process
    Applying for traditional loans is notoriously a time-consuming process that requires a lot of paperwork. This is not the case with invoice financing. The online application takes only minutes to complete and asks for simple business details and contact information.
  • Low qualification requirements
    If you’ve been turned down by banks, this may be the financing solution you need. Approval, advance and factor rates are primarily based on the credit of your customers, not your business.
  • No collateral required
    Invoices act as collateral, so no additional assets are necessary to secure the financing. 


  • High cost
    The cost of invoice financing versus other short-term options is favorable if your customers repay invoices quickly. However, it can become expensive if it takes longer for your customers to pay.
  • No guarantee of collection
    If your customer doesn’t pay its invoice, you’re still on the hook to repay the lender, as with a standard business loan.
  • Qualification is outside your control
    Qualification, advance and factor rates are primarily based on the credit of your customers, not your business. 

Business owner using financial data to evaluate whether invoice financing is right for his small business.

Qualifying for Invoice Financing

The requirements for invoice finance factoring focuses mainly on the creditworthiness of your customers. Knowing this, you can expect invoice financing companies to perform a business credit check, reputation analysis and an examination of your customer’s payment history with your business. 

The health of your business is still relevant, however, and will influence both the advance you’re offered and the factoring rates you’re assigned. For example:

  • If your revenue is trending up for 6 months or more, you’ll be considered a stronger candidate and may be offered more favorable terms. 
  • The more accounting history your provider has to review, the better your profile may look. This is especially important for businesses that operate in industries labeled risky by lenders (like restaurants).

The Cost of Invoice Financing

One of the most significant advantages to invoice financing is its straightforward cost structure. 

For example, the invoice financing company charges a one-time processing fee of 3% and a weekly factor of 2% of the total value until the invoice is paid in full. 

If you finance an invoice for $20,000, the cost structure will look like this:

Amount of financed invoice: $20,000

One-time 3% processing fee: $600

1.02 weekly factor rate: $400/week

An invoice financing company advances you 85% of the funded invoice. 

Amount of financed invoice: $20,000

85% advance rate: $17,000

It takes your customer a total of 3 weeks to repay the invoice. As a result, the invoice financing company deducts $1,800 from the reserve amount. 

FeeWeeks to RepaymentTotal
One-time 3% processing fee$600N/A$600
1.02 weekly factor rate $400 per week3$1,200
Total Invoice Financing Cost: $1,800


The invoice financing company issues a $1,200 rebate. 


Total invoice financing cost$1,800
Rebate owed to customer: $1,200

Small business tip: To see how much your offer may cost, use our invoice financing calculator to better understand your terms.

Best Invoice Financing Lenders

Each online lender has options for businesses looking to bridge temporary gaps in their cash flow, but only a few provide true invoice factoring or invoice financing. Two companies that do are Fundbox and BlueVine. 


Fundbox reports that contractors, plumbers, lawyers, doctors, accountants and distributors are common users of their invoice financing products. Best for businesses seeking support for smaller amounts, Fundbox offers between $1,000 and $100,000. Fundbox also provides invoice financing for bad credit

Best suited for
Business owners with bad credit
Invoices under $100,000

Financing amount
Up to $100,000

Repayment terms
Between 12-24 weeks

Factor rate
Starting at 1.05

Revenue required

Time in business
3 months or greater (business activity must be logged via online bookkeeping or accounting software)

Personal credit score
No minimum credit score


If you have stronger credit, you can get between $20,000 and $5 million in invoice financing from BlueVine Capital. Much like Fundbox, BlueVine serves businesses in the service and professional services industries. 

Best suited for
Invoices above $100,000
Business owners with good credit

Financing amount
Up to $5 million

Repayment terms
Between 1-13 weeks

Factor rate
Starting at 1.02

Revenue required

Time in business
3 months or greater

Personal credit score
530 or greater

Business owner signing application for invoice financing.

Invoice Financing Frequently Asked Questions (FAQs)

Here are your most common questions about invoice financing: 

What happens when my customers pay their invoices?

It depends on your lender agreement. There’s typically no change in how your customers pay their invoices. They’ll remit payments to your business entity. You then make payment to your lending provider. However, with some providers, the amount you borrowed is automatically repaid when a customer pays their invoice directly to the lender.

Will my invoice financing provider contact my customers?

No. Invoice financing doesn’t require the sale or assignment of your invoices to your provider. This means you’ll maintain control of customer communication.

Your customer relationships are unchanged and continue to operate as usual. 

How can I qualify for invoice financing?

While qualifying for most short-term business financing is based on your business’s creditworthiness, that isn’t the case with invoice financing.

Since repayment is tied to your customer, the ability of your customer to repay is typically the most important qualification. Thus, your provider will consider both your customer’s and your business’s criteria when determining eligibility and rates. 

How to Choose an Invoice Financing Company

An important first step is to research the invoice financing firm to make sure they’re reputable. Next, compare the terms. Make sure you can meet the stated financial requirements.

Additionally, consulting with a trusted advisor is an excellent way to hone in on a reputable firm. 

Applying for accounts receivable financing can be done through an online business lender such as Fast Capital 360. 

You can apply in minutes and find the best accounts receivable financing company for your unique needs. You can be approved within hours and even receive funding as soon as the same day.