when businesses sell goods or services to large customers such as wholesalers or retailers they usually do so on credit this means that the customer does not have to pay immediately for the goods that it purchases the purchasing company is given an invoice that has the total amount due and the bill s due date however offering credit to clients ties up funds that a business might otherwise use to invest or grow its operations to finance slow paying accounts receivable or to meet short term liquidity businesses may opt to finance their invoices 
invoice financing is a form of short term borrowing that is extended by a lender to its business customers based on unpaid invoices through invoice factoring a company sells its accounts receivable to improve its working capital which would provide the business with immediate funds that can be used to pay for company expenses invoice financing from the lender s perspectiveinvoice financing benefits lenders because unlike extending a line of credit which may be unsecured and leave little recourse if the business does not repay what it borrows invoices act as collateral for invoice financing the lender also limits its risk by not advancing 100 of the invoice amount to the borrowing business invoice financing does not eliminate all risk though since the customer might never pay the invoice this would result in a difficult and expensive collections process involving both the bank and the business doing invoice financing with the bank 