Invoice financing is a common solution for businesses that sell on credit and need faster access to cash. When customers take 30, 60, or 90 days to pay invoices, even profitable companies can experience cash flow gaps. Invoice financing loans close those gaps by letting businesses access working capital that’s otherwise tied up in unpaid invoices. The global invoice financing market was worth $3.15 trillion in 2024, and it’s projected to reach $7.17 trillion by 2033.

Below, we’ll explore how invoice financing works and how it compares to invoice factoring and traditional business loans.

What’s in this article?

• What is invoice financing?
  
• How do invoice financing loans work?
  
• What are the advantages and disadvantages of invoice financing?
  
• What are the best conditions for invoice financing
  
• What’s the difference between invoice financing and invoice factoring?
  
• How does invoice financing compare to other business loans?
  
• How Stripe Capital can help
  

What is invoice financing?

Invoice financing is a way to turn unpaid invoices into usable cash before customers pay. Instead of taking out a traditional loan based on your company’s overall credit profile, you borrow against specific invoices. A financing provider advances you a percentage of the invoice value up front. Then, when your customer pays, you repay the advance plus a fee.

How do invoice financing loans work?

Invoice financing is intentionally narrow. It ties funding directly to specific invoices rather than to your business as a whole.

Here’s how it works:

1. You issue an invoice to a customer: After you’ve delivered the product or completed the service, you send a valid, undisputed invoice to another business or public sector customer with defined payment terms.

2. You submit that invoice to a financing provider: You share the invoice with a financing provider, which evaluates the invoice, and the customer’s history of payment and ability to pay. This places less emphasis on your own credit profile than a more traditional loan would.

3. The provider issues an advance: Once the provider approves the invoice, it advances a portion of its value, often up to 80% or 90%. Funds typically arrive within a few business days.

4. The customer pays on normal terms: Your customer pays the invoice according to the original agreement, just as they would without financing.

5. You repay the advance, with fees: When the customer’s payment arrives, you pay the provider back the advance, plus a time-based fee. You keep the invoice’s remaining balance.

What are the advantages and disadvantages of invoice financing?

When it’s used intentionally and with clear expectations, invoice financing can be a powerful tool. It’s important to weigh the cash flow help it can provide against what it requires from you.

Here are some benefits of this loan type:

• Fast access to cash: Invoice financing quickly converts unpaid invoices into usable capital, which can be important when expenses outpace customer payments.

• Improved cash flow visibility: Access to cash that was tied up in receivables allows businesses to cover payroll, suppliers, and operating costs directly, without optimizing payment timing.

• Straightforward qualification process: Approval for invoice financing loans is driven primarily by the quality of your invoices and the creditworthiness of your customers rather than by your credit score or years in business.

• Limited collateral requirements: The invoices themselves typically serve as collateral, which reduces the need to pledge equipment, property, or personal assets.

• No impact on customer relationships: Unlike factoring, invoice financing usually allows you to keep billing and collections under your control, preserving a consistent customer experience.

And here are some of the challenges:

• High effective cost: When fees are annualized, invoice financing is often more expensive than term loans or lines of credit. These charge interest only on the amount borrowed.

• Late payment fees: Because fees accrue over time, slow-paying customers can significantly increase the total cost of financing.

• Retained risk: Invoice financing is typically based on recourse. This means if the customer doesn’t pay, you’re still responsible for repaying the advance to the financing provider.

• Specific use cases: Invoice financing generally works only for B2B companies with formal invoices, reliable customers, and sufficiently large invoice amounts.

What are the best conditions for invoice financing

Invoice financing is more accessible than many forms of business funding. But clear boundaries still apply.

Invoice financing is an option only in the following scenarios:

• B2B invoicing: Invoice financing is designed for companies that sell to other businesses or public sector entities and issue formal invoices with defined payment terms.

• Completed, undisputed invoices: The work on the invoice must already be complete, or the goods must be delivered. The invoice can’t be subject to disputes, contingencies, or unresolved issues.

• A solid track record: While long operating histories aren’t required, lenders usually want evidence that the business is legitimate, active, and generating consistent invoices.

• Creditworthy customers: Providers focus heavily on the payment histories and financial stability of your customers, because their payments ultimately clear the financing. Businesses with customers who pay reliably are the best candidates.

• Minimum invoice sizes or volumes: Many providers require invoices to meet a certain value threshold or to be submitted in batches so financing is economically viable.

• Clean claims on receivables: To qualify for invoice financing loans, invoices typically can’t be pledged as collateral elsewhere, such as under a blanket lien from another lender.

What’s the difference between invoice financing and invoice factoring?

Invoice financing and invoice factoring are often grouped together. But the two methods work differently. Here are some important distinctions between them:

• Who owns the invoice: With invoice financing, you retain ownership of the invoice and use it as collateral for an advance. With invoice factoring, you sell the invoice outright to a third party.

• Who collects payment: With invoice financing, your business collects directly from the customer. Factoring shifts the collection responsibility to the factoring company.

• What the customers know: Invoice financing is usually invisible to customers. Factoring typically requires customers to pay the factoring company directly, letting them know a third party is involved.

• Who controls customer relationships: Financing lets you manage communication, disputes, and follow-ups yourself. Factoring hands much of that interaction to the factoring company.

• Who takes on risk: Invoice financing is usually based on recourse, which means you’re responsible if the customer doesn’t pay. Factoring can either be recourse or nonrecourse, depending on the agreement.

• What determines the cost: Financing costs are tied to how long the invoice remains unpaid. Factoring fees are often higher because the factoring company takes on collections and, in some cases, credit risk.

How does invoice financing compare to other business loans?

Compared to most business loans, invoice financing solves a different problem. It sits somewhere between a traditional loan and a cash advance.

Here are the main differences between invoice financing and more traditional loans:

• Basis for approval: Invoice financing is underwritten against specific invoices and the customers who owe them. Traditional loans evaluate the overall financial health of the business.

• Speed of access: Invoice financing is typically much faster to secure. Funds are delivered in days rather than weeks or months, as is common with traditional business loans.

• Cost of capital: Invoice financing incurs higher effective costs in exchange for speed and flexibility. Traditional loans and credit lines usually come with lower interest rates.

• Flexible vs. fixed amount: Invoice financing scales directly with sales volume. Traditional loan amounts are fixed at origination and require reapplication to increase.

• Repayment structure: Invoice financing is repaid when the customer pays the invoice. Traditional loans come with fixed repayment schedules that are decoupled from cash inflows.

• Use cases: Invoice financing is best suited for short-term working capital needs tied to receivables. Loans are better for long-term investments or broader growth initiatives.

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a loan or merchant cash advance in minutes—without the lengthy application process and collateral requirements of traditional bank loans.

• Align financing with your revenue: Capital’s revenue-based structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.

• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.

• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payment data.

Learn more about how Stripe Capital can fuel your business growth, or get started today.