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What is Invoice Financing or Bill Discounting ?

Updated: Dec 7, 2023

It is vital for any business to maintain consistent cash flow to run its operations smoothly, however, business that sell product or provide service on credit may find it difficult due to time lag between the delivery date and payment date. In such cases, Invoice Financing can be really helpful for the business. Invoice Financing is a facility for businesses wherein business can borrow money against its unpaid invoices as collateral.

Features of Invoice Financing

1. Immediate Access to Funds: Invoice financing enables business to arrange instant funds. After the issuance of invoice, business can use it for financing immediately and in most case, financiers disburse the funds within 24 to 72 hours.

2. Collateral: Financier takes collateral as unpaid invoices, therefore, all the other assets such as land & building, inventory and plant & machinery are risk free.

3. Type of Invoices: Invoice Financing is available on commercial business i.e., invoices issued to businesses only.

4. Funds Disbursed: Financier provides certain percentage (generally ranges from 70% - 95%) of the total amount mentioned in invoices not the entire amount, in order to limit its risk.

5. Fee Involved: Financier charges certain fee for providing the Invoice Financing facility to the business. Fee may be a fixed or variable (varies on the basis of how quickly customer makes payment) percentage of the entire amount (generally ranges from 0.5% - 3%).

6. Additional Costs: There are certain other charges involved in invoice financing which may or may not be involved in the fee such as Application fee, per-invoice handling charges, credit checking fee, postage, legal fee, termination fee etc.

Types of Invoice Financing

There are two types of Invoice Financing that businesses can access namely, Invoice Factoring and Invoice Discounting.

1. Invoice Factoring: In Invoice Factoring, the lender will provide credit control services as well which simply means that lender will ensure that customers make payment on time. This option is more suitable for small scale businesses that do not have much resources available.

2. Invoice Discounting: In Invoice Discounting, the lender won’t provide any credit control services. The business itself has the responsibility to ensure timely payments from customers. It is relatively more time consuming and requires active involvement from business.

Invoice Financing is suitable for those businesses/ situations

1. Small business (as it helps in sales growth, bad debt reduction, better relationships with supplier and lowers administrative cost)

2. Credit Sales is high OR

3. Long time lag between Delivery date and Payment date OR

4. Do not have any asset for keeping it collateral against loan OR

5. Need funds on an immediate basis.

How Much Invoice Financing Cost?

The cost of Invoice Financing varies based on lender, type of invoice, industry, volume and risk involved and also tenure based of invoice. Here are Advance Rate and Fee charges for Top Invoice Financing Companies:


Advance Rate




2.75% - 8.25%

Riviera Finance

Up to 95%

Quote System

RTS Financial

Up to 97%

1% - 5%


Up to 90%

0.25% - 2.5%

Triumph Business Capital

Up to 100%


TCI Business Capital

60% - 90%

Quote System

How to Access Invoice Financing?

1Research Companies: Research, evaluate and compare companies on the basis of eligibility, advance rates, fee charged, services provides and terms & conditions.

2. Compile Documentation: Invoice Financing companies require business to submit certain documents such as tax returns, financial records, customer payment history and other such documents as may be required by the company.

3. Formal Application: Each and every company has its own application process, business needs to gain an understanding of the process and apply accordingly.

4. Agreement: Further, business enters into an agreement with the financing company comprising details such as fee structure, advance rate, volume commitment and tenure of agreement.

5. Disbursement of Fund: Post agreement, business can access invoice financing anytime. Once invoices are generated, business needs to submit them to the financing company, the company will review those invoices and disburse the funds to business. Whenever customer makes payment, business gets the balance of amount mentioned in invoice less fee charged by financing company.

6. Quote System: In quote system, the business provides all the details to the financing company and based on that information financing company makes an offer to the business. After that business can submit invoices and related documents and get the funds from financing company.

To conclude, invoice financing provides various advantages to the business such as quick and easy access to funds and no risk to assets but at the same time business needs to perform due diligence while accessing invoice financing: compare companies and read the terms & conditions carefully.

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