A type of finance, particularly short-term borrowing, that is extended by a firm to its customers using unpaid/ outstanding invoices as security/ collateral for the loaned funds. Invoice financing encompasses both invoice finance and invoice factoring. A basic feature of invoice financing is its confidentiality- that is, the business seeking financing does not disclose to other parties any information about its customers. The business manages its invoices by its own, while using the leverage capabilities of its receivables to obtain funding.

Invoice financing allows businesses to borrow against their accounts receivable (A/Rs) to release the monetary resources tied up in its invoices, and hence generate cash quickly, or earlier than anticipated.

Invoice finance gives a business a quick access to a percentage of its invoice’s value quickly, usually within 24 hours. The potential lender extends an amount of money based on a certain set of risk factors.

In short, by invoice finance, a firm can utilize untapped assets on its balance sheet in a better way for cashflow or investment considerations.

The main types of invoices finance are factoring and invoice discounting.