Invoice Financing

See: Factor.

You run a company that sells foot powder. Your big customer, a bowling shoe rental emporium, buys $5,000 worth of product. You ship out the cases of foot powder and send a bill. Now you have to wait until they pay. They have 30 days to send the money...but if they're late, you might not see the cash for six weeks, or even a couple of months.

Meanwhile, you could really use that $5,000. You know...to pay salaries and buy supplies and pay rent on your factory. That kind of thing.

So...what do you do? Well, one option is invoice financing, i.e. using your accounts receivable as collateral for a loan.

You borrow $5,000 with the promise that, when you receive the money from the customer, you will use the cash to repay the lender. You're getting the money now that you would otherwise have to wait a few weeks to receive from the bowling shoe place. It's a short-term loan, using the account receivable as a way to prove to the lender that you're good for the cash.