Invoice Financing

Invoice Financing (also known as Bill Discounting or Accounts Receivable Financing) is a short-term business funding option that allows companies to borrow money against unpaid customer invoices.
It helps businesses improve cash flow, manage working capital, and continue operations smoothly while waiting for clients to clear payments.
Banks, NBFCs, and fintech lenders offer invoice financing solutions to MSMEs, exporters, and service providers to overcome payment delays.

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    Types of Invoice Financing

    Businesses can choose different types of invoice financing based on their financial needs and payment cycles. The main types include:

    Invoice Discounting

    In this type, the business uses its unpaid invoices as collateral to get immediate funds from a lender. Once the customer pays the invoice, the loan amount (plus interest) is settled. Ideal for companies that want to maintain client relationships confidentially since customers are not informed about the financing.

    Invoice Factoring

    Here, the lender (called a factor) directly manages the invoices and collects payments from customers on behalf of the business. The business receives up to 80–90% of the invoice value upfront, and the balance after deduction of service charges when payment is received.

    Export Invoice Financing

    Designed for exporters, this facility provides funds against unpaid export bills, helping businesses cover shipping, logistics, and production costs while awaiting international client payments.

    Selective Invoice Financing

    Businesses can choose to finance only specific invoices instead of their entire sales ledger. This gives flexibility to manage short-term liquidity without overborrowing.

    Peer-to-Peer (P2P) Invoice Financing

    Offered through online lending platforms, where investors fund business invoices in return for short-term interest. It’s a fast-growing financing model for startups and SMEs.

    Why Is Invoice Financing Important?

    Improves Cash Flow:

    Provides instant access to working capital tied up in unpaid invoices.

    Encourages Business Growth:

    Allows reinvestment into business operations without waiting for customer payments.

    Reduces Payment Delays Impact:

    Helps companies maintain stability even if clients take 30–90 days to pay.

    No Collateral Required:

    Since invoices themselves act as security, there’s no need to mortgage assets.

    Flexible & Scalable:

    Businesses can finance invoices as per requirement, scaling up during high-demand periods.

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    FAQs

    What is the difference between invoice factoring and invoice discounting?

    In invoice factoring, the lender collects payment directly from customers. In invoice discounting, the business collects payment and repays the lender later — keeping the arrangement confidential.

    Any business, MSME, exporter, or service provider with valid unpaid invoices raised on reputable clients can apply.

    Typically, lenders finance up to 80–90% of the invoice value, depending on the client’s payment history and business profile.

    No. Invoices act as the primary security, so no additional collateral is needed.

    Repayment usually ranges from 30 to 120 days, depending on the payment terms mentioned in the invoice.

    Yes. The TReDS platform (Trade Receivables Discounting System), approved by the RBI, enables MSMEs to finance invoices from large corporate buyers securely and transparently.