Invoice Finance: How To Leverage Invoices To Get Cash (2026)

For many founders, the dream moment of securing a big order or seeing a spike in sales is quickly followed by cold reality: cash flow problems. You have the orders, but not the capital to fulfill them, because your money is tied up in unpaid invoices.

This is the so-called success trap: your sales ledger looks impressive, but your bank account is empty. Abby Bowler, cofounder of the personal-care brand SadieB, experienced this after landing a deal to stock products in 500 Target stores. 

“The huge hurdle for us right at the beginning was funding that order that we were going to need to fulfill—Target’s order,” Abby says on an episode of Shopify Masters. “We considered fundraising and we looked at a few other options, and ended up on the perfect solution for us for this season of our business, which is invoice financing.”

Invoice financing allows you to leverage the invoices you send to clients to secure a short-term loan. Learn how it can help you bridge the gap between receiving an order and getting paid.

What is invoice financing?

Invoice financing is a form of short‑term business financing where you use your outstanding receivables—the money your customers owe you—as collateral to secure an immediate cash advance from a lender. Rather than waiting 30, 60, or even 90 days for customers to pay, an invoice financing company quickly fronts a significant portion of the invoice amount. You then repay them—plus fees and interest—when your customer eventually pays.

In simple terms, you are selling or leveraging the money your customers owe you in the future to get cash today. 

Most invoice financing companies advance between 80% and 90% of an invoice’s value upfront. They hold the remaining 10% to 20% in what is known as a reserve—or a portion of the invoice value the lender holds as collateral until your customer pays the invoice in full. 

In exchange for this immediate liquidity, you pay a fee—often called a factor rate—that ranges from 1% to 5% of the total invoice amount. These costs vary based on the length of your credit terms and on your customer’s creditworthiness rather than yours. The goal is to trade a small percentage of your future income for the ability to get cash to reinvest in your business immediately.

Invoice financing often is referred by other names, depending on the lender and the specific structure. These include:

• Accounts receivable financing. The broad umbrella term for using your accounts receivable, or money owed to you, as loan collateral.

• Receivables financing. A shortened version often used by financing companies and banks.

• Invoice factoring. A specific type of invoice finance where you sell the invoice entirely and the lender becomes responsible for collecting payment from your customer.

Almost any business that invoices other companies can use invoice financing, but it’s most common in industries with long production cycles and high upfront costs, including:

• Clothing and textiles. These companies often have to pay for raw materials months before a finished product is ever sold to a retailer.

• Manufacturing. With manufacturing companies, the cost of raw materials and labor must be covered long before the end customers pay their bills.

• Wholesale and distribution. Companies selling large amounts of goods to big box retailers that traditionally demand credit terms of 60 to 90 days before they pay.

• Staffing and services. In these industries, small businesses often pay employees weekly or biweekly, but might not receive customer payments for a month or more.

Why businesses use invoice financing

For many small business owners, seeking financing isn’t a sign of struggle—it’s a strategic move to fuel business growth. Here are the primary reasons you might want to use invoice financing:

Improved scalability

Landing a big retail partner like Target or Sephora is a milestone for any business, but it can also impose a serious financial strain. When a small company suddenly needs to produce five or 10 times its usual volume to fulfill a single contract, the upfront costs for raw materials, packaging, and shipping can prove overwhelming. 

Without a way to unlock the value of future payments, a small company might have to turn down a game-changing contract simply because it can’t afford to manufacture the goods to fulfill it. With invoice financing, however, your access to capital grows alongside your sales, since it’s tied to your invoices rather than a fixed credit limit.

Can’t qualify for other types of financing

Traditional banks are often cautious with new business owners, especially those lacking a long business credit history or substantial physical collateral like real estate or equipment. They also usually are slower and require more paperwork than financing options offered by specialized fintech companies and independent factoring companies. For many businesses, this creates a catch-22: you need the capital to fulfill the very orders that would prove your creditworthiness to a bank, but you can’t get the loan until you’ve already proven it.

SadieB faced this exact crossroads after landing its Target deal. Invoice financing was the optimal solution because it let them essentially piggyback on Target’s high credit rating and ability to pay the invoices. Abby notes that by leveraging Target’s invoices, their company secured the inventory funding they needed without navigating the burdensome application process of a traditional bank.

Bridging the working capital gap 

One of the most common reasons for ecommerce failure is a timing mismatch in cash flow. You may have to pay your manufacturer 50% upfront to start production, but your customer won’t pay you until 60 days after they receive the goods.

This creates a working capital gap—a period where your cash is going out, but none is coming in. Invoice financing bridges this gap by turning your receivables into cash immediately. Instead of waiting for customer payments to land, you can use the advance to fund your next production run.

Types of invoice financing

Different types of invoice financing come with varying features and terms:

Invoice factoring

With invoice factoring, you sell your individual invoices to an invoice factoring company. They take control of your sales ledger—a record of all transactions and the amounts each customer owes—and handle collecting payment.

Factoring generally falls into one of two categories:

• Recourse factoring. This is the most common. If your customer fails to pay the invoice, you’re responsible for paying the money back to the factoring company.

• Non-recourse factoring. The lender assumes responsibility for payment collection. If the customer doesn’t repay, you don’t have to pay the lender back. Because this is riskier for the lender, it comes with higher fees.

Invoice discounting

This is a version of accounts receivable financing designed to protect your customer relationships. Unlike factoring, where a lender takes over collections, invoice discounting lets you use your invoices as collateral while you maintain control of the collection process.

The primary motivation here is relationship management. By using invoice discounting, your customer continues to deal only with you, ensuring the brand experience remains seamless.

Receivable-based line of credit

Instead of financing by using individual invoices, you pledge your entire pool of outstanding receivables to secure a revolving credit line. You can draw on it as needed. Your limit grows as you ship more orders, and as customer payments come in, you pay down the balance and can access more cash.

How invoice financing works

Here’s how invoice financing works for borrowers:

• Sale and invoicing. You fulfill a large order for a business customer, ship the goods, and send an invoice for, say, $100,000. Because this is a business-to-business (B2B) transaction, the credit terms are net 60, meaning the customer has 60 days to pay you.

• Application and verification. You submit the invoice to your invoice financing company. The application process is usually fast—often connecting your Shopify store or accounting software to the lender for verifying your payment history and the amount and validity of unpaid invoices.

• Advance. Once approved—often within one business day—the lender sends you an advance. This is usually 80% to 90% of the invoice value. For the invoice example above, you might receive funds of about $85,000 immediately. You can use this to pay employees, restock, or fund new investment plans.

• Collection period. During the next 60 days, you (or the factoring company) wait for the customer to pay. With invoice discounting, you remain your own credit controller, meaning that you’re responsible for managing the business’s credit relationship with customers. With factoring, the lender typically handles payment collection on your behalf.

• Remittance. The customer pays the full $100,000 directly to the lender, or to your business and you then pass it on to the lender, and the transaction is settled. The lender then releases the remaining balance to you—this is a 10% to 20% reserve the lender held back during the initial advance—minus their additional fees and interest. At this point, you’ve received the full invoice value of your sale, and the lender has been compensated for providing the upfront working capital.

For businesses that sell directly to consumers or can’t qualify for factoring their invoices yet, Shopify Capital offers an alternative. It provides funding in the form of a merchant cash advance (MCA). Like invoice financing, an MCA isn’t a traditional loan—it’s the sale of a portion of future sales in exchange for immediate capital. Shopify provides an advance based on your store’s sales history and automatically collects repayment as a fixed percentage of daily sales. 

*Shopify Capital loans must be paid in full within a maximum of 18 months, and two minimum payments apply within the first two six-month periods. The actual duration may be less than 18 months based on sales.