Invoice advances to finance growth

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The bank may give the business (the borrower) an advance on its invoices up to an agreed percentage. In return, the borrower will pledge the underlying receivables as security to the bank. The bank is thus given a specific guarantee allowing it to collect the invoices from the business’ customers.

An invoice advance is a form of financing which generally allows businesses to overcome cash flow shortages, often the result of terms of payment, in order to finance their payment cycle. It is a cash advance, like cash credit, a fixed advance or a temporary current account overdraft facility.

The administrative burden associated with invoice advances means that they are seldom used and that factoring is opted for instead.

Objective: they are used to finance the operating cycle, working capital and cash flow needs resulting from late payment by customers.

Who is concerned?

Available to the self-employed and any type of business, an invoice advance is used to meet cash flow requirements, i.e. short-term needs, and applies in the following cases:

  • growth of the business;
  • relatively long operating cycle;
  • large invoices;
  • long terms of payment given to customers;
  • prepayment of suppliers so as to benefit from discounts.

Example: a business has a major, well-renowned customer (e.g. a state company) that wishes to pay a large invoice with a 3-month term of payment for budgetary reasons. The business may then ask its bank for an invoice advance to meet its cash flow requirements caused by its customer's late payment.


Documentation or description of the business

  • copy of the company’s articles of association;
  • group structure if the company is part of a more complex group;
  • last 3 audited balance sheets of the borrower and, if applicable, the latest available trial balance;
  • recent supporting documentation regarding VAT, tax and social security situations;
  • order book (where applicable);
  • list of customers and their relative contribution to turnover;
  • list of suppliers.

Presentation of the application

  • cash flow statement;
  • forecast budget showing future working capital requirements;
  • presentation and analysis of the quality of the debtor;
  • calculation of the effect of the discount on cash flow requirements.


Although an invoice advance is a self-liquidating credit, its risk for the bank is not to be underestimated. As the credit risk depends on the final debtor, the bank must check the quality of debtors and ensure that their customer base is sufficiently wide.

Therefore, guarantees are required depending on the customer’s reputation, its turnover and the overall financial structure of the business, the extent of the invoice advance and the quality of the debtor of the invoices. The most common guarantees requested for an invoice advance are:

  • endorsement of the invoice;
  • pledging of the invoice as security;
  • assigning of credit insurance;
  • the surety of the parent company or partners/shareholders;
  • various moral guarantees.

When the partners/shareholders of a business have to stand surety for the company, the bank should be provided with the details of their financial situation.

How to proceed

Application terms and conditions


Determined according to the due date of the invoice.


  • minimum amount generally required by banks (administrative burden);
  • advances generally limited to about 80 % of the amount of the invoices;
  • specific amount, if the invoice advances are granted within the framework of a cash credit.

Interest rate

The cost of the invoice advance is made up of the following elements:

  • variable interest rate on the cash credit plus a margin depending on the quality and the risk of the customer;
  • fixed amount per invoice, including the costs of sending the endorsed invoices by registered letter, etc.;
  • a commission if the advance is granted within the framework of a credit line;
  • interest, calculated pro rata temporis (in proportion to the time already lapsed), is paid at maturity of the advance by debiting the current account of the business which undertakes to ensure that its current account has sufficient funds.


The advance is repaid on the due date of the invoice when the debtor (buyer or customer of the borrower) pays the amount in question into the books of the borrower’s bank.

Set-up times

The reviewing and processing times depend on the complexity, size and urgency of the case.

Advantages, disadvantages and risks


  • reduction in cash flow shortages resulting from a gap between the payment of invoices received and the collection of invoices issued;
  • rapid payment of suppliers so as to benefit from significant discounts;
  • self-liquidation since the advance is repaid by the customer’s payment.


  • relatively costly because of the administrative burden;
  • the bank requires credit insurance;
  • cost of the reservation fee or the permanent availability of the credit line, which is due in all cases, whether the credit is used or not.


Risk of the debtor defaulting on payment (to be covered by credit insurance).

Example of how an invoice advance works


  • the bank opening the credit line;
  • the business (the borrower / the seller);
  • the business’ customer (the trade debtor or the buyer).
  1. the borrower endorses the invoices and hands them over to the bank, which accepts them as security;

  2. the bank sends the original copy of the endorsed invoice to the debtor of that invoice by registered letter, advising the debtor that it has been pledged as security;
  3. the invoice advance is set up by crediting the current account (or the cash credit) of the business (the borrower); in principle this is done 8 days after the endorsed invoice is sent to the debtor, thus giving the final debtor the time to voice any possible objections;
  4. interest is paid at maturity of the advance by debiting the business’ current account;
  5. the advance is repaid when the final debtor (buyer) pays the amount in question into the books of the borrower’s bank.

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