When you have to wait for customers to pay their invoices, you have less working capital available in your bank account to cover day-to-day business expenses. While your customers may appreciate not having to pay immediately, this is the money used to take care of your business. Invoice factoring allows business owners to turn their outstanding invoices into money they can use right away.This is done by selling those invoices to a third party, known as a factor, at a discounted rate. The factoring company then collects the full amounts of the invoices from your customers.
Invoice financing is another small business financing option similar to invoice factoring. The difference between the two is that while invoice factoring involves selling your outstanding invoices, invoice financing is a loan based on the value of your invoices.