22 Aug 2020

Invoice Finance

Finance feed by:

Mr Ananth Narayana

CA in Practice
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   •    12 Year 11 Month  experience

Invoice financing is a form of short term borrowing which is extended by the bank or a lender to its customers based on unpaid invoices. Invoice financing is often carried out to meet short-term liquidity needs of the company.

Invoice financing allows the company or a firm to meet its short-term liquidity needs based on the invoices generated which are still unpaid by its customers. Unpaid invoices are accounts receivable, which means that the company will receive that amount but at a later date.

If the company faces a liquidity crunch in that period, it has the option to go for invoice financing to meet its liquidity requirement. The company can use the cash to pay employees or suppliers, or invest in getting new machinery, etc.
The benefit of invoice financing is that the company doesn't have to wait for accounts receivable to come and then start paying its employees, buy equipment, etc. They can do that as and when they get the money from the bank or lender.

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