Invoice financing allows you to borrow cash using your outstanding accounts receivable as collateral. A capital provider provides you a portion of your unpaid receivables in the structure of a line of credit or loan. Typically, the amount of cash upfront can be as high as 95% of the face value of your invoices.
For Example) If you have an invoice for $5,000 * 95% = $4,750 {This is the amount received by the invoice financing company}
After your customer pays your invoice, you'll repay the capital provider the amount loaned in addition to fees and interest. With invoice financing, your business is still required to collect the outstanding invoices owed by your customers.
Sometimes, the invoice financing business will coordinate with your accounts receivable database on the back end. When your client pays your invoice, the lender could automatically subtract its fee before passing on the balance to you.
