What is Invoice Trading?

Invoice trading is a way for businesses to unlock cash from unpaid invoices for B2B payments by selling them to external investors. This alternative financing method provides businesses with immediate funds, without needing to wait for customers to settle their invoices.

If you’re offering extended payment terms on trade credit to your customers, there’s always a risk that a certain number of those payments will come in late. And this is a growing risk – a recent survey found that 45% of SMEs are experiencing more late payments than 12 months ago. 

Businesses often have to wait weeks, or even months, for customers to pay outstanding invoices, tying up capital that could be used for growth, payroll, or supplier payments. Invoice trading is a way to unload those invoices and turn them into cash, reducing risk in your trade receivables.

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What is invoice trading and how does it work?

Invoice trading is a type of invoice finance where businesses sell their unpaid invoices to investors via an online platform. Rather than waiting for customers to pay, businesses receive an advance, which is typically 70-90% of the invoice value, from investors who then collect the payment when the invoice is due​.

Much like trade credit insurance. 

How invoice trading works in practice:

1. The business lists an unpaid invoice on an invoice trading platform.
2. Investors bid to purchase the invoice or parts of it.
3. The business receives a cash advance (often within 24-48 hours).
4. The investor collects payment from the customer when the invoice is due.
5. The remaining balance (minus fees) is returned to the business once the invoice is settled​.

This process helps businesses bridge cash flow gaps without taking on additional short term business loans. Unlike traditional invoice factoring, businesses remain in control of their customer relationships, as invoice trading platforms often do not chase customers directly for payments​.

How invoice trading improves cash flow without increasing debt

One of the biggest advantages of invoice trading is that it recovers cash tied up in unpaid invoices without increasing business debt. Instead of borrowing money, say by using a business overdraft or business credit card and accumulating interest, businesses receive an advance on funds they are already owed.

What are the key benefits for businesses?

• Immediate access to working capital: There’s no need to wait 30, 60, or 90 days for customers to pay.
• Flexible finance option: Businesses can choose which invoices, like selective invoice finance, to sell rather than committing their entire debtor book​.
• No long-term contracts: Unlike traditional invoice financing, invoice trading often allows businesses to access funds without lengthy tie-ins​.
• Investor funding, not loans: Since businesses are selling their invoices rather than borrowing against them, it doesn’t appear as debt on their balance sheet.

However, while invoice trading solves cash flow issues, it doesn’t remove the underlying risk of unpaid invoices. If customers fail to pay, businesses may still face financial complications further down the road. This is where alternative solutions, such as B2B Buy-Now-Pay-Later provide a way to ensure full payment upfront without relying on third-party investors.

Invoice trading vs. invoice discounting: what’s the difference?

Both invoice trading and invoice discounting help businesses access cash from unpaid invoices, but they work differently.

Invoice trading gives businesses more flexibility as they can choose which invoices to trade, whereas invoice discounting often requires businesses to put up their entire sales ledger as security​.

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How to choose the right invoice trading platform for your business

If you’re considering invoice trading, choosing the right platform is essential. Different platforms have different terms, fees, and investor networks.

Key factors to consider:

1. Funding speed: How quickly do they release cash? Many platforms provide funds within 24-48 hours​.
2. Advance rate: How much of the invoice value will you receive upfront? Some platforms offer up to 90% of the invoice amount​.
3. Fees and costs: What percentage of the invoice value do platforms take as fees? Costs can vary depending on platform commissions and investor demand.
4. Risk Management : What happens if the customer fails to pay? Some platforms offer trade credit insurance, while others require businesses to cover losses.
5. Investor network : Are investors reliable and well-funded? A strong investor base means higher chances of selling invoices quickly​.

How do I choose the best invoice trading platform?

To choose the best invoice trading platform, consider funding speed, fees, investor reliability, and risk management options, as well as quick access to funds (usually within 24-48 hours), competitive advance rates (typically 70-90% of invoice value), and transparent fees.

It’s worth comparing different providers and understanding the true cost of invoice trading, as fees can sometimes add up, making the option less financially viable.

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What are the risks of invoice trading, and how can I avoid them?

The main risks of invoice trading include high fees, investor uncertainty, and potential non-payment by customers. To mitigate these risks, compare platform costs carefully, as and consider credit insurance or recourse agreements, so you are not left covering unpaid invoices.

Let’s look at these risks in more detail.

• High fees: Some platforms charge transaction fees, processing fees, and investor commissions that cut into your profit margins​.
• Unreliable investor: If demand for invoices is low, you might struggle to get a good price for your invoices.
• Risk of non-payment: If the customer doesn’t pay the invoice, your business may still be liable. Some platforms offer credit insurance, but this adds extra cost.
• Reputation risks: By handing your invoices off to a third party, you’re putting your business reputation in the hands of the investors when it comes to how they handle collections.

How to write a trading invoice and include ‘trading as’ correctly

A trading invoice serves as a record of a business transaction and must be clear, legally compliant, and correctly formatted, including clear payment terms on the invoice. 

If your business operates under a trading name different from its legal entity, you must include ‘Trading As’ (T/A) followed by the business name on the invoice. This ensures clarity for tax purposes and legal compliance. 

The role of crowdfunding in invoice trading

Business crowdfunding has changed how businesses access finance, giving individuals and smaller investors the chance to play a bigger role in offering finance.

Invoice trading crowdfunding platforms allow individual and institutional investors to collectively fund invoices, giving businesses an alternative to traditional lending or single-investor invoice financing. 

Is invoice trading right for my business?

Invoice trading can be a useful tool for businesses looking to turn unpaid invoices into cash, providing flexibility, fast funding, and an alternative to traditional lending. However, it doesn’t eliminate invoice risk entirely, since you’re still depending on customers paying their invoices, and trading fees can add up.

Instead of trading invoices at a discount or relying on investors, you can remove invoice risk altogether with iwocaPay. Our Buy Now, Pay Later solution ensures you get paid upfront, while offering customers flexible payment terms.

• Instant payments: You receive full payment as soon as the invoice is issued.
• No risk of non-payment: Unlike invoice trading, you don’t have to worry about whether customers will pay.
• Flexible payment options for customers: Buyers can pay immediately or spread the cost over time, improving affordability without affecting your cash flow.
• No hidden fees: iwocaPay provides transparent, cost-effective financing.

Instead of selling invoices at a discount, iwocaPay allows you to offer flexible payment terms while getting paid in full upfront.