What Is Invoice Financing?

Borrowing against receivables
In the UK: how the British Business Bank describes invoice finance

Invoice financing is borrowing against your unpaid invoices. A lender makes part of the value of your invoices available to you, using the invoices as security, and you repay it, plus fees, when your customers pay. Unlike factoring, where you sell the invoices, the invoices are security for funding, and in the form called invoice discounting you keep collecting from your customers yourself.

Billed publishes this page. The definitions below are quoted from the open textbook Introduction to Business 2e from OpenStax (section 16.3), the UK descriptions from the British Business Bank, a development bank owned by the UK government, and the US program description from the US Small Business Administration, all opened on October 29, 2026. This page doesn't give rates or say whether invoice financing suits your business. That's a decision for you, your accountant and the lender.

Borrowing against receivables

OpenStax describes two ways a business can use its accounts receivable to get short-term financing:

As security for a loan. "Secured loans require the borrower to pledge specific assets as collateral, or security." It says: "Because accounts receivable are normally quite liquid (easily converted to cash), they are an attractive form of collateral."
By selling them. "Another form of short-term financing using accounts receivable is factoring." See what is invoice factoring.

In the UK: how the British Business Bank describes invoice finance

The British Business Bank says: "Invoice finance is when the lender uses unpaid invoices as collateral for funding". It also says "Terminology may vary but there are two main types of invoice finance", and lists invoice factoring and invoice discounting as those two types, so in its usage factoring is a form of invoice finance. It describes how a facility works:

Assigning invoices: "When a business takes out an invoice finance facility, they can 'assign' (essentially sell), some or all of the customer invoices that are currently outstanding to the finance provider."
Drawing what you need: the invoices "generate a pot of available funding that rolls over as invoices are raised and paid", and "Businesses can draw down the funding you need within that availability."
Invoice discounting: "invoice discounting is a finance-only product, without the additional day-to-day sales ledger management and collection activity that is provided through factoring."

Eligibility

Each lender sets its own criteria. The British Business Bank describes these points for the UK:

Business customers: "Invoice finance is normally only available to businesses that trade with other businesses (known as business-to-business, or B2B) on credit terms."
What the provider looks at: your latest accounts and "details of your outstanding invoices (your accounts receivable)", to assess "how likely they are to be paid without any issues".
Credit checks: providers run credit checks when you apply, and the bank says "These checks could have an impact on your credit report."

This page doesn't say whether a lender will approve you. Ask the lender what it needs.

Costs

The fees: in the UK, the British Business Bank says: "A business will usually pay a service fee (a percentage of the value of each invoice), and a discount charge (like interest)". The discount charge depends on the amount of funding used.
The agreement: in the UK, it says providers "will require you to enter into an agreement for a minimum period of time", and that "Depending on the terms set by your lender, you may be held responsible if your customer fails to settle their invoice."
The amounts: each lender sets its own. This page doesn't quote rates. Ask each lender for every fee in writing and compare the total cost with your other options.

Invoice financing and lines of credit

OpenStax says "Unsecured bank loans include lines of credit and revolving credit agreements", and defines a line of credit as "An agreement between a bank and a business that specifies the maximum amount of unsecured short-term borrowing the bank will allow the firm over a given period". The difference is the security: a line of credit is unsecured, while invoice financing uses your invoices as security.

In the US, the Small Business Administration's lender guide describes CAPLines as "an umbrella program that helps small businesses meet their short-term and cyclical working-capital needs", including a Seasonal CAPLine that "finances the seasonal increases of accounts receivable and inventory". These loans are made through SBA lenders, so ask a lender which programs it offers.

Worked example: drawing on a facility

The business, invoices, availability and fees here are a sample, invented for this example. They aren't quoted rates or market terms; real terms come from each lender's agreement.

A small agency has $20,000 of unpaid invoices. Under its sample facility, it can draw up to 70% of their value, and it continues to collect from its customers.

Funding available: $20,000 × 70% = $14,000.
Drawn now: the agency draws $10,000 to cover this month's costs, leaving $14,000 − $10,000 = $4,000 undrawn.
Fees: a $150 service fee plus a $120 discount charge = $270.
When the customers pay the $20,000: the agency repays $10,000 + $270 = $10,270 and keeps $20,000 − $10,270 = $9,730.
In total: $10,000 early plus $9,730 later = $19,730 from $20,000 of invoices, so the financing cost $270.

Drawing only what it needed kept the borrowing at $10,000 rather than the full $14,000 available.

Where Billed fits

A lender will likely want to see your outstanding invoices. Billed's invoice software page says: "Invoice reports show which invoices are paid, partially paid or past due, and you can see who owes you money and send them a payment reminder." Its financial reporting page says: "All reports in Billed can be exported for use with your accountant, bookkeeper, or tax software." For consistent invoices, there are invoice templates and an invoice generator, and for repeat work, recurring invoices. For payments customers make online, see accept payments. For checks or cash, Billed's invoice software page says to "record it as an offline payment so all your income is in one place."

When this guide isn't for you

This guide is for small businesses that invoice other businesses. If you sell to consumers, need a larger facility, or are comparing different kinds of business finance, the terms and rules differ. Ask your accountant or lender before you sign anything.

Frequently Asked Questions

What is invoice financing?

Borrowing against your unpaid invoices. A lender makes part of their value available to you, using the invoices as security, and you repay it plus fees when your customers pay.

What is the difference between invoice financing and factoring?

With factoring, you sell the invoices and the factor collects from your customers. In the UK, the British Business Bank describes invoice discounting as a finance-only product without that day-to-day collection activity.

Who can get invoice financing?

Each lender sets its own criteria. In the UK, the British Business Bank says "Invoice finance is normally only available to businesses that trade with other businesses (known as business-to-business, or B2B) on credit terms." It says providers look at your accounts and outstanding invoices. Ask the lender what it needs.

What does invoice financing cost?

Each lender sets its own fees, so this page doesn't quote rates. In the UK, the British Business Bank says a business "will usually pay a service fee (a percentage of the value of each invoice), and a discount charge (like interest)". Ask your accountant or lender to compare the total cost with your other options.

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What Is Invoice Financing? Borrowing Against Receivables