Invoice financing is a way for businesses to borrow against unpaid invoices. With invoice financing, sometimes called accounts receivable financing, you sell accounts receivable to a lender instead of waiting for customers to pay their invoices.
You can get payment immediately, but this financing option has its downsides. Read on to see how invoice financing works and whether it is a good idea for businesses that need funds.
What Does Invoice Financing Mean?
Invoice financing is a term that applies to products that alleviate the financial pressure of waiting for customers to pay their invoices.
Companies use invoice financing to shorten their cash conversion cycle, or the time they need to convert their investments in inventory into cash, says Bob Castaneda, director of Walden University’s accounting and finance programs.
This short-term borrowing solution “helps companies to fund their working capital needs, such as paying employees, suppliers and other