# What is invoice finance and how does it work for businesses?
Invoice finance (also called invoice factoring or accounts receivable financing) is a funding method where businesses sell their outstanding invoices to a finance company at a discount to access immediate cash flow rather than waiting 30-90 days for customer payment. How it works: (1) Business provides goods/services and issues invoice to customer; (2) Business sells invoice to finance company; (3) Finance company advances 70-90% of invoice value immediately; (4) Customer pays finance company on due date; (5) Finance company releases remaining balance minus fees to business. Types of invoice finance: Invoice Factoring - finance company manages collections and customer relationships; Invoice Discounting - business retains collection responsibility, finance company remains invisible to customers; Selective Invoice Finance - choose which invoices to finance rather than whole ledger. Costs: typically 1-5% of invoice value plus interest (0.5-1.5% monthly on advanced amount). Benefits: immediate cash flow for growth, no debt on balance sheet, covers credit risk, flexible (grows with sales). Ideal for: businesses with 30-90 day payment terms, growing companies needing working capital, seasonal businesses, and companies with large outstanding invoices. Requirements: established trading history, creditworthy customers, minimum turnover (usually £50,000-100,000+).
## Key Takeaways
- Invoice finance (also called invoice factoring or accounts receivable financing) is a funding method where businesses sell their outstanding invoices to a finance company at a discount to access immediate cash flow rather than waiting 30-90 days for customer payment.
- How it works: (1) Business provides goods/services and issues invoice to customer; (2) Business sells invoice to finance company; (3) Finance company advances 70-90% of invoice value immediately; (4) Customer pays finance company on due date; (5) Finance company releases remaining balance minus fees to business.
- Types of invoice finance: Invoice Factoring - finance company manages collections and customer relationships; Invoice Discounting - business retains collection responsibility, finance company remains invisible to customers; Selective Invoice Finance - choose which invoices to finance rather than whole ledger.
## Related Topics
- invoice finance
- invoice factoring
- invoice financing
- accounts receivable financing