Cash flow issues remain one of the most significant hurdles for startups. Even with growing sales, delayed payments can strain operational budgets and halt planned growth. Although the Philippine economy is expected to grow by 5.6% in 2025, with stable inflation and improving investment conditions, many startups still struggle to turn invoices into immediate cash.
Invoice financing addresses this by using unpaid invoices as collateral, giving startups quick access to working capital without equity loss or heavy debt. This ensures timely payments to suppliers, salaries, and other essential expenses.
In this blog, you’ll learn how invoice financing works, its benefits for businesses, and practical strategies to use it effectively for sustainable growth.
Key Takeaways
- Invoice financing turns unpaid customer invoices into instant working capital without equity dilution.
- Startups can choose between invoice discounting and selective invoice financing for flexibility.
- Unlike factoring, financing lets you retain full control over customer relationships.
- Ideal for overcoming payment delays without long loan approval processes.
- Works best when paired with disciplined invoice tracking and reliable payment histories.
What is Invoice Finance?
Invoice financing is a short-term funding method where startups use unpaid customer invoices as collateral to secure an advance from a lender. The lender typically provides 70% to 90% of the invoice value upfront, releasing the remainder (minus fees) once the customer pays.
Unlike traditional loans, approval depends on the customer’s payment reliability rather than the startup’s credit history. This makes it accessible for early-stage businesses with limited financial records.
There are three common types of invoice finance:
- Invoice Factoring: A business sells its unpaid invoices to a finance company (the factor). The factor then takes over the responsibility of collecting payments from customers. The industry receives most of the invoice value upfront, minus a fee, while the factor handles collections and credit control.
- Invoice Discounting: Here, businesses borrow money against their unpaid invoices but retain control over their sales ledger and customer collections. The finance company advances a percentage of the invoice value, and once customers pay, the business repays the advance plus fees.
- Selective Invoice Financing: This flexible option lets businesses choose specific invoices to finance rather than their entire sales ledger. It’s ideal for companies that want to manage cash flow for particular clients or projects without committing to all invoices.
Businesses that face long payment cycles or unpredictable payment schedules can benefit significantly from invoice finance, improving cash flow stability and enabling smoother day-to-day operations.
Now that we’ve covered the basics of an invoice finance startup, let’s explore why it can be especially valuable for startups compared to other businesses.
Why Invoice Financing is Ideal for Startups?
Startups often face unpredictable cash flows and limited access to bank loans due to their short operating history. Even with strong sales, delayed customer payments can disrupt day-to-day operations. Invoice financing provides a practical way to bridge these cash flow gaps without giving up equity or taking on heavy debt.
Here’s why many early-stage businesses find it a perfect fit:
1. Accessible Approval Process
Approval is based on the creditworthiness of your customers, not your business. This makes it easier for early-stage startups with little or no credit history to secure funding.
2. No Equity Dilution
You raise funds without giving up ownership or shares, meaning long-term decision-making power stays with the founders.
3. Faster Access to Cash
Funds are usually available within 24 to 48 hours of approval, helping you meet urgent expenses like payroll, supplier payments, or marketing campaigns.
4. Supports Growth
Consistent cash flow allows you to take on larger orders, expand to new markets, or launch new products without waiting for customer payments.
5. Flexible Funding Options
You can choose to finance all invoices for ongoing liquidity or just a few high-value invoices when cash flow is tight.
To use invoice financing effectively, let’s understand how the process works from application to repayment.
How Does Invoice Financing Work?
Invoice financing is a step-by-step process where a business uses its unpaid invoices to access immediate cash. Knowing how it works helps startups manage timelines, avoid payment surprises, and keep operations running smoothly. Here’s the typical process:
Step 1: Invoice Issuance - Your business delivers the product or service and sends an invoice to the customer with the agreed payment terms (e.g., 30 or 60 days).
Step 2: Funding Request - Instead of waiting for the customer to pay, you submit this unpaid invoice to a financing company for cash advancement.
Step 3: Advance Payment - The financing provider quickly transfers an agreed percentage of the invoice value, usually between 70% and 90%, to your account within 24 to 48 hours.
Step 4: Customer Payment - The customer pays the invoice amount directly, either to you (in invoice discounting) or to the financing provider (in invoice factoring).
Step 5: Balance Settlement - Once the customer’s payment is received in full, the financing provider releases the remaining balance after deducting their service fees or interest charges.
Here’s a real-world example that helps bring the mechanics to life, showing the cash flow relief and operational flexibility that invoice financing offers.
Example scenario: A SaaS startup issues a ₱2,800,000 invoice with a 60-day payment term. Waiting two months would stall its hiring and marketing plans. Through invoice financing, the lender advances ₱2,240,000 within 48 hours. The startup immediately hires a developer and launches a marketing campaign. When the customer pays in 60 days, the lender releases the remaining ₱532,000 after deducting a ₱28,000 fee.
At first glance, invoice financing may appear similar to invoice factoring, but there are key differences. Let’s break them down.
How Invoice Financing Differs from Invoice Factoring?
Both methods unlock funds tied up in invoices, but they differ in how they handle customer interaction, confidentiality, and fee structures. These differences affect brand perception and operational control.
Here’s a clear side-by-side comparison table for Invoice Financing vs Invoice Factoring:
While both invoice financing and factoring can ease cash flow gaps, let’s first understand why many startups struggle to secure traditional funding and the common challenges they face.
Challenges Faced by Startups in Securing Traditional Funding
Traditional funding options such as bank loans, overdrafts, and corporate credit lines are designed for established businesses. Lenders require a proven track record, steady revenue, and substantial collateral, which most early-stage startups cannot provide.
Here are a few specific challenges startups encounter:
- Lack of Track Record: Banks want evidence of consistent performance, typically in the form of 2–3 years of audited accounts. Startups without this history are considered high risk.
- No Tangible Collateral: Traditional loans are usually secured against property, machinery, or inventory. Many startups, especially those in digital or service sectors, lack such physical assets.
- Volatile Revenue Streams: Early sales are often irregular due to market testing, scaling phases, or seasonal demand, making it hard to project repayment schedules confidently.
- Stringent Credit Criteria: Lenders assess both business and personal credit scores. A thin or poor credit file can instantly block approval, regardless of growth potential.
- Slow Funding Timelines: Loan approval can take weeks due to paperwork, compliance checks, and board approvals. This is often too slow for a startup that needs immediate working capital to seize opportunities.
Now that we’ve explored the challenges startups face with traditional funding, let’s look at best practices for using invoice financing effectively to maintain steady cash flow.
Best Practices for Startups Using Invoice Financing
A structured approach to invoice financing helps startups maximize cash flow, reduce costs, and maintain strong customer relationships. Without proper practices, businesses may pay unnecessary fees, strain client relations, or misuse funds.
Below are a few recommended practices to follow:
Check Your Customers
Only finance invoices from clients with reliable payment histories and strong credit profiles. This reduces the risk of delays or defaults and ensures smoother repayment to the financing provider.
Maintain Accurate Records
Ensure every invoice is complete, correctly itemized, and free of errors. Proper documentation speeds up approvals, minimizes disputes, and helps your business track cash flow accurately.
Use Financing Selectively
Avoid financing all invoices automatically. Prioritize invoices tied to urgent expenses or growth opportunities to control costs and prevent dependency on external funding.
Compare Providers Thoroughly
Evaluate multiple financing companies based on advance rates, fees, contract terms, and service quality. Choosing the right provider can save money and offer better flexibility for future cash flow needs.
Monitor Costs and Terms
Keep track of interest, fees, and repayment schedules to ensure financing remains cost-effective. Regularly reviewing terms helps avoid surprises and maintain profitability.
By following these best practices, we can ensure efficient use of invoice financing and explore how n90 simplifies the process, addressing common challenges startups face.
n90: The Smart Solution for Startup Invoice Financing
Many startups lose momentum because of payment delays, even when their order books are full. Waiting 60 or 90 days for customers to pay can mean missed opportunities and stalled growth. Traditional bank loans are often slow to process and require strict collateral, which may not suit fast-moving businesses.
We at n90 offer a flexible Invoice Financing solution designed to convert the value of your unpaid invoices quickly. By turning outstanding receivables into immediate working capital, n90 helps your business maintain smooth operations, meet urgent expenses, and seize growth opportunities without waiting for customers to pay.
Here’s what we offer to address the critical financial needs:
- Invoice Financing: Enables businesses to access 70–90% of their outstanding invoice value quickly, helping them manage cash flow and meet payment obligations on invoices with 30, 60, or 90-day terms.
- Bridge Loans: Specifically designed to close short-term cash flow gaps, allowing you to seize immediate opportunities or manage transitions, much like the closed bridging loans discussed earlier.
- Small Business Loans: Flexible financing options for broader business needs, including expansion, inventory, or operational cash flow.
Eligibility Requirements for Invoice Financing in the Philippines
- You are a resident of the Philippines with a valid government-issued ID or Alien Registration Card (ARC).
- Your business is registered with the Bureau of Internal Revenue (BIR) and either:
- Department of Trade and Industry (DTI) for sole proprietorships, or
- Securities and Exchange Commission (SEC) for partnerships or corporations.
- Your company’s annual revenue is at least ₱25 million.
Invoice Financing is ideal for companies that issue invoices with credit terms like net-30 or net-60 and experience cash flow gaps due to slow-paying customers. We pride ourselves on a relationship-based approach, offering clarity, speed, and financing designed for real business challenges.
Final Words!
Invoice financing converts unpaid invoices into immediate cash, helping businesses maintain operations, cover expenses, and support growth. It also reduces reliance on high-interest loans or delayed payments from clients, and understanding the process and best practices allows companies to make informed decisions.
With n90, businesses gain fast access to working capital while the platform handles documentation, approvals, and fund transfers. This ensures funds are available quickly, reducing stress and operational delays. Transparent fees and flexible terms make managing cash flow simpler and more predictable.
Get in touch with n90 today to turn your unpaid invoices into working capital and keep your startup growing without cash flow bottlenecks.
FAQs
1. Can invoice financing be used for milestone-based project payments?
A. Yes, an invoice financing startup can cover milestone-based invoices as long as they are issued with clear payment terms. Lenders typically review the project scope, milestone completion, and customer reliability before advancing funds. This allows businesses to maintain cash flow even for partial project payments.
2. Does invoice financing work with international clients?
A. Many invoice financing startup providers support cross-border invoices, but processes may differ from domestic financing. Fees, currency conversion, and additional risk assessments are considered. Confirm the provider’s international capabilities before submitting invoices.
3. How is the financing amount determined if the customer disputes the invoice?
A. In cases of disputed invoices, lenders may withhold funds until the issue is resolved or adjust the advance percentage. Clear documentation and prompt resolution of disputes help release funds faster, ensuring protection for both the invoice financing startup and the business.
4. Can invoice financing be used for subscription-based revenue models?
A. Yes, as long as invoices clearly define the billing period, deliverables, and amounts due. Lenders assess the predictability and reliability of payments before advancing funds. This enables businesses using invoice financing startup solutions to maintain steady cash flow for recurring revenue streams.
5. Does using invoice financing impact future bank loan applications?
A. Generally, invoice financing does not appear as traditional debt on balance sheets, so it has minimal impact on future loan approvals. However, maintaining consistent repayment and clear financial records is crucial to preserving credibility with lenders, especially for a growing invoice financing startup.
