Invoice Finance utilises outstanding invoices within your sales ledger to secure cash flow funding for your business.
It may be difficult to secure funding through the bank when looking for either an overdraft or a loan for reasons such as security or credit ratings. Invoice finance works by advancing the cash you are due to receive within invoice payments to other businesses. For instance by advancing a payment you are set up to receive in 60 days’ time so you can get your hands on the cash within 24 hours.
How Does Invoice Finance Work?
The video below provides a good explanation of how invoice finance works as an alternative for business lending.
Not able to watch the video? No problem, here’s a short step by step guide on how invoice finance works.
- You provide your goods or services to a customer and raise an invoice with agreed credit terms of 30-120 days.
- You send a copy of that invoice to the invoice finance lender who advances you up to 100% of the cash value of that invoice, usually within 24 hours. You can now use the cash to cover costs and make investments for growth.
- Once the agreed payment terms are reached, perhaps 60 day payment terms, the customer pays the invoice finance lenders and you are returned the cash you were not initially advanced by the lender, minus fees.
Advantages of Invoice Finance
As with many alternative business lending products, invoice finance comes with advantages which are difficult to find anywhere else. Here are the top benefits of invoice finance:
- Confidential Facilities – If you don’t want your customers to know you are using an invoice finance facility as you feel it may get in the way of your customer relationships, you can choose a confidential facility where the lender can work under your name, or anonymously.
- Credit Collection – One way to reap the largest rewards from invoice finance is to include a payment collection facility. Whilst your lender sends reminders of any cash owed, you are free to concentrate on your business.
- Grows with you – Invoice finance works by advancing the value of your invoice. This could be a small value invoice, or a large value invoice, so when your business grows you don’t have to go through the hassle of reapplying for a larger loan or overdraft.
Disadvantages of Invoice Finance
- Considering invoice finance can potentially allow you access to up to four times as much cash compared to a bank overdraft, you do have to pay for the privilege. If you would like to look at a rough estimate on how much a facility may cost you, check out our invoice finance calculator for instant feedback. Don’t forget to hit “Apply Now” when you are there to get speaking to a consultant.
- Some businesses find that once they enter a full invoice finance facility, it is difficult to leave. This is largely due to the amount of funding available through invoice finance compared to other business finance products.
- Some old-school suppliers, clients and other stakeholders within your business may look negatively upon invoice finance and factoring in particular. This is down to the misconception that invoice finance is for businesses who are failing. The majority of users are using invoice finance through 2-3 years periods of high growth.
How to Obtain Invoice Finance
If you are interested in assessing invoice finance facilities, you may find it useful to use our free consultation service where you can learn more about how invoice finance works for your business and compare the best fit lenders for your circumstances.
Simply click on Get a Quote and a consultant will call you to discuss your option, cost and obligation free. We look forward to hearing from you.