Invoice Financing

With invoice financing, (also known as invoice discounting or AR financing), a financing company provides a business with a loan that is secured against the business’s invoices. The loan is then repaid once the invoices are paid by the borrower’s customers.

Invoice financing is often confused with invoice factoring; however, these types of lending are different in a few key ways. Unlike invoice factoring, in which customer payments are remitted to the lender, the borrower is responsible for collecting customer payments with invoice financing. This means that the borrower’s customers remain unaware of a lender’s involvement.

Another key difference between these types of financing methods is that with factoring, the client sells their unpaid invoices to the lender, while with invoice financing, the unpaid invoices are used as collateral against a loan. Additionally, borrowers tend to have more flexibility with invoice factoring than with invoice financing because with the latter, they often must submit their entire invoice book for financing, rather than getting to choose which outstanding invoices to factor.