What is the primary purpose of using unpaid invoices in financing?

Using unpaid invoices in financing primarily serves the purpose of securing a loan against future income. This practice, known as accounts receivable financing or invoice financing, allows businesses to leverage outstanding invoices as collateral to obtain funding. The idea is that the unpaid invoices represent money that is owed to the business, and by securing a loan against these receivables, the business can gain immediate access to cash flow needed for operations, investments, or other expenses.

This approach is particularly beneficial for small businesses that may face cash flow constraints while waiting for customers to settle their invoices. By using their unpaid invoices to obtain financing, these businesses can sustain operations without having to wait for payment, thus enhancing liquidity and supporting growth.

The other options, while potentially relevant in various business scenarios, do not align with the primary function of using unpaid invoices in financing. Establishing credit history primarily involves building a track record of borrowing and repayment, which is separate from the immediate financial benefits of leveraging invoices. Avoiding bankruptcy typically requires broader financial strategies beyond the use of unpaid invoices. Increasing sales revenue is an operational goal and does not directly relate to the concept of financing through unpaid invoices.