How to Improve Cash Flow with Invoice Financing?

Are you experiencing slow or stagnant cash flow? Don’t worry. It’s normal for smaller, newer businesses to have irregular cash flow – even bigger companies still experience the cash flow crunch. However, there are many ways to approach a cash flow problem. 

One way is through short-term loans. With high-interest rates, these loans are ones you have to pay off quickly, but they can help fill in the gaps left by slow cash flow. Another way to deal with a cash flow crisis is invoice financing. 

In this article, we’ll explore the nitty-gritty of invoice financing. What it is, why you might want to use it, and how you can best implement it in your company. 

What is Invoice Financing?

Invoice financing is a type of borrowing where you take money out against outstanding invoices. So, if you have a customer that’s supposed to be paying you within 30 days (according to the invoice), you can borrow part of that money in advance with interest based on how long it takes to pay the invoice. 

Essentially, invoice financing lets you take out the money you’ll already get. 

While that’s the gist of it, there are multiple kinds of invoice financing: 

  1. Invoice Factoring: Rather than borrowing money in advance of your invoices, with Invoice factoring, you essentially sell some of your invoices to a third party. The company will pay you part of the invoice and get the rest directly from the customer. 
  1. Invoice Discounting: In this case, a company will lend cash to your business up to the value of your unpaid invoices. It’s specifically a loan rather than a purchase, like invoice factoring. 
  1. Selective Invoice Finance: Rather than selling your whole ledger, you can get funds against a select number of invoices. 

Benefits of Invoice Financing for Small Businesses

If you’re trying to figure out how to improve cash flow, invoice financing is certainly a great route to look down. Because you’re getting money based on invoices you already have, you have a lot less to worry about in terms of going into debt. But what are the other benefits of invoice financing for small businesses?  

  1. Fast and Simple: Invoice financing gives you quick access to cash if you need it right now, with uncomplicated terms involved in the deal. Applying for invoice factoring is also much quicker than your typical loan. 
  1. No Debt: Because you’re already getting the money from an invoice you sell, you won’t accrue massive amounts of debt trying to get your cash flow up in time for a quarterly assessment. 
  1. It frees up money: If you’re waiting on an invoice, you’ve already technically made the money you’re going to get. Invoice financing frees up capital you’d otherwise not have access to until later. 
  1. Less Limitation on Funding: With loans from banks, your credit history and trustworthiness are relevant to pushing it through. However, with invoice financing, the impetus is on the buyer of your invoices. It’s their credit that matters, not yours. 

How to Qualify for Invoice Financing?

To qualify for invoice financing, you’re less on the line than you would be taking out a loan. Any business, regardless of your creditworthiness, can apply for invoice factoring. The risk is taken on by the other company that’s purchasing your invoice.

However, invoice financing isn’t suitable for everyone. If you have clients who don’t pay on time, your interest will go up, and you may eventually not profit. A poorly implemented invoice financing plan could kill your business.

Choosing the Right Invoice Financing Company

Now that you’ve decided to use invoice financing as one of your cash flow solutions – how do you pick a good provider? Here are a few tips. 

  1. Know the company’s finance model. Some finance companies will be incredibly clear about payment plans. For example, cashflowfrog provides excellent financial reporting. Meanwhile, other companies may be cagier about what you’ll be getting out of them.
  1. How much will you pay? Some companies have more fees than you’d like. Know that you’re not paying too many outstanding fees.
  1. Make sure you can be selective. Let yourself be picky with your options regarding who you will borrow from and what exactly they’ll be buying from you.


In terms of cash flow solutions, invoice financing is one of the most popular options, especially in the small business scene. Hopefully, this article has given you a good overview of the process.

Have you used invoice financing to increase your business’s cash flow? Did it work out for you? Let us know your experience with invoice financing.

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