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Invoice Financing 101: What is Invoice and Receivables Financing?

It’s undeniable that the pandemic has been especially hard on small to medium enterprises, or SMEs. While multinational corporations like Amazon and Tesla have grown astronomically over the pandemic, small disruptions, like late payments on invoices which are typically survivable in normal times, are causing many SMEs to go out of business. Although there are government programs intended to assist SMEs in getting through the pandemic, many still don’t have enough liquid cash to survive while waiting for payments to be settled - so what options do they have?

While it’s a lesser known aspect of financing, invoice and receivables financing is just as essential to business longevity as any other line of credit or financing option. In a nutshell, it refers to the financing of open invoices, which are paid back upon eventual receipt of payment. This means SMEs don’t need to wait at the mercy of their customers’ payment terms (which can be up to 120 days) and can be paid immediately for work completed, dissolving cash flow bottlenecks. 

Luckily, new solutions for invoice financing which bypass traditional financial institutions have emerged. These new kinds of platforms rely on algorithms for approval processes, and blockchain for immutable record-keeping. Because the human element in approving these loans is removed, conscious and unconscious bias are removed entirely from the process, and other barriers, like business size, are no longer negative factors. Automated record-keeping means that the return on time spent on administration isn’t taken into account. 

Access to this kind of platform is easy and simple, with many working as invoice auctioning marketplaces akin to a “NASDAQ for Receivables”. These marketplaces enable businesses of any size to list and sell their invoices, while also enabling peer-to-peer investors to browse and select those they are willing to finance. Interest rates vary for those seeking financing, but are typically lower than traditional financial institution short-term or pay-day loans. Investor risk is also minimized, as eligibility for platforms is measured via integrated risk assessment systems, which sources and processes granular financial data to gauge risk with exceptional accuracy. 

These platforms are already starting to make a splash, with tech giants like Facebook partnering with platforms like Crowdz to roll out their new Facebook Receivables Program, which provides invoice financing for minority-owned businesses up to $25 million in a 12-month period. 

While initiatives like the Facebook Receivables Program do have a focus on increasing access for diverse and minority-owned businesses, invoice marketplace platforms are accessible to any SME due to their impartial nature. This means any business can quickly and easily access cash otherwise tied up in lengthy payment terms, and as any business owner knows after more than a year of restricted business operations, access to this capital can mean the difference between staying operational or closing down.


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Payson Johnton

Payson Johnton

CEO and Co-Founder


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14 Jan 2020



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This post is from a series of posts in the group:

Financial Supply Chain

In the world of international trade, the process of exchanging payments, information and documents between buyers, sellers, banks, and other involved parties is becoming increasingly important for financial institutions. This community aims at presenting views and innovative ideas related to this financial supply chain space.

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