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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jun 3, 2021

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Summary

  • Business invoice financing creates cash flow to business when a customer finances an invoice
  • You can get invoice financing loans with interest rates as low as 0.25%
  • Check your business credit score to make sure you can meet the lender’s requirements

Do you have a business with invoices that you finance for customers? Financing is a versatile option for customers who don’t pay their invoices in full. To prevent financed payments from affecting your business, you can use business loans known as business invoice financing to protect your business’s capital.

So what is business invoice financing exactly and how does it work?

Read on to learn more about business invoice financing and how you can use it to your advantage. Enter your ZIP code in the free comparison tool above to compare multiple loan companies.

What is business invoice financing?

Business invoice financing, or invoice financing, is when a business borrows money from a lender to keep a steady cash flow while a customer is paying an invoice from a company over time.

For example, let’s say you sell a shipment of spark plugs to a customer. The customer doesn’t pay the invoice in full, but they make a down payment to start a series of payments that will last for at least a year.

Financially, you may not be able to wait that long to get your money back. Invoice financing can provide a loan that gives you the money back right away while the customer is making payments.

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Types of Invoice Financing

Invoice financing (receivable financing) is handled in various ways. Some companies don’t want to deal with managing invoices, so they send them to finance companies.

Let’s go over five different types of invoice financing, so you’ll know your options in the future.

Online Invoice Auctioning

If you’re looking for a fast, cost-efficient way to borrowing money against an invoice, try auctioning your invoices online. Select the invoices you want, set them up to bid, and wait for lenders.

The lender with the highest bid provides the business with an invoice financing loan. Your business will receive a lump sum payment while the customer pays the lender the amount due.

Invoice Factoring

A business that values the relationship with customers will use invoice factoring as a last resort.

Invoice factoring can provide cash up to 90% of the invoice amount to the business, but the lender will hold onto ten percent of the total amount until the invoice is paid off.

The lender (debt collector) manages the invoice for your business, which could be damaging to the relationship with the customer.

Invoice Discounting

This is much different than invoice factoring because the customer isn’t aware of it. When a customer finances a product, you can borrow the money against the invoice and finance it through a lender.

Invoice discounting allows the business to control and manage the invoice account. In other words, the business receives the money from the customer, and the business pays the lender for the loan.

Invoice discounting can be used as a pre-emptive measure to secure cash flow while a customer is making payments. You may have to charge additional fees to your customers to make profits.

Selective Invoice Financing

If you need invoice financing on several invoices, you’ll need selective invoice financing. It’s a large lump sum payment to your business, but it can affect your business relationship with some customers.

The lender will manage the invoice for you. You can focus on providing revenue to critical parts of your business and payment to employees.

Spot Factoring

With spot factoring, you can target a specific invoice to finance. The lender will return the money to your business once the invoice is paid in full.

Spot factoring is a one-time service where the business pays the lender for convenience and management over the invoice.

Keep reading to learn more about the top invoice financing companies.

What are the best invoice financing companies?

Check out this list of invoice financing companies.

The Best Finance Companies for Invoice Financing
FINANCING COMPANYFUNDING AMOUNTFACTOR RATESSPEEDHOW TO QUALIFYBEST FOR
BlueVineUp to $5 million0.25% to 1.7% per weekAverage of two to seven days530 minimum credit score; three months in business; $120,000 annual revenueFast and easy financing; startups or businesses with average credit
AltLINEUp to $4 million; minimum of $15,000 per month0.5% to 3% for the first 30 days; maximum of 5%As fast as two days500 minimum credit score; ability to factor $15,000 worth of invoices per monthMonthly contract financing; business owners with lower credit
Porter CapitalUp to $15 millionStarts at 0.75% per monthAs fast as 24 hoursSpecifics not availableFast funding, flexible solutions including those that accommodate businesses with previous financing issues
PayplantUp to $1 millionStarts at 1.2%As fast as 24 hoursSpecifics not availableLarger businesses who can access the most affordable rates
Triumph Business CapitalUp to $5 millionVaries based on your invoice volume and contract length/typeAs fast as the same day, if invoices submitted by the cut-off timeNo current UCC filings; $50,000 income/month for non-transportation industriesFinancing for larger invoices; ability to upgrade to additional products
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Porter Capital provides the highest funding amount, but AltLine has the lowest minimum credit score requirement.

BlueVine has the lowest factor rate, but Porter Capital and Payplant have the fastest loan approval.

According to CNBC, you should check your business credit score before making a final decision on business endeavors.

These may be the best candidates for invoice financing, but other reliable finance companies can give you quality service. Find a financial advisor and develop a strategy.

How do you apply for invoice financing?

Each company has different requirements, as seen in the previous section. Look at the requirements the finance company needs and then apply. Most reliable companies have websites where you can start the application process online.

Invoice financing for small businesses works the same as any other business loan. If your small business meets the requirements set out by the lender, then you qualify for invoice financing.

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Business Invoice Financing: What’s the bottom line?

Invoice financing can save your business from losing money and needing to rely on high-interest personal loans.

It’s a risky move because the general view of debt collectors and finance companies is negative in the eyes of some customers. Therefore, choose your invoice financing strategy carefully.

Now that you know more about business invoice financing, use our free online comparison tool to compare the best companies in your local area.