Invoice Financing

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What is Invoice Finance?

Invoice finance enables businesses to quickly unlock cash tied up in outstanding invoices.

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Why Choose Invoice Finance?

Invoice finance allows businesses to speed up invoice cycles and free up cashflow, rather than waiting for customers to make payment.

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How it Works:

Simply pass unpaid invoices to the lender, who will release cash in exchange for a percentage of the invoice fee.

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Invoice Finance at a Glance

What is Invoice Finance?

Invoice finance allows a business to release cash that is owed to them in outstanding invoices quickly without having to wait the 30, 60 or even 90-day payment terms afforded to your customers. It allows businesses to free up cash that is tied up in their debtor book early to be used for cashflow or investment elsewhere.

Invoice finance is well suited to businesses that operate on a B2B basis, i.e. invoicing other businesses for products and services rendered.

How does Invoice Finance Work?

Once a customer invoice is raised, there is the option to sell it onto a finance company in order to release cash flow. In return for receiving an upfront payment (usually up to 90% of the value of the invoice in question), the finance company will collect the customer payment when due – and pay you the remainder of the invoice minus their small fee.

There are several variations of invoice finance available, ranging from full and part debtor book, to selective spot factoring for individual invoices. Facilities can also be disclosed or confidential depending on the type chosen meaning that your customers will not necessarily be aware that you are using such facility.

What are the Benefits of Invoice Finance?

The main benefit of invoice finance is that it allows businesses to take control of their finances and receive the money that they are owed much more quickly (typically within 24 hours), rather than waiting for the agreed payment terms to elapse.

This makes invoice finance a great option for B2B companies looking to alleviate potential cashflow problems, by ensuring a faster turnaround on payment for work already completed. Businesses benefit from peace of mind knowing that they can focus on running their business without worrying about potential late payments.

Invoice finance is also an attractive option for new or start-up businesses who may not be able to obtain more traditional methods of working capital, such as overdrafts or business loans. Provided they are raising invoices, invoice finance can offer them a lifeline to the working capital they need to grow and expand.

Finally, invoice finance providers can effectively work as an extension of your business, as your credit control function. They will work on your behalf to collect payments from your customers, and in some cases provide credit checks on potential customers, as well as bad debt protection.

What types of Invoice Finance are available?

There are several variations on the invoice finance facility available, which are designed to suit different business needs. The costs associated vary depending on the option you select, along with the industry, how much you are invoicing, and the value of the invoices. Another variable will be the credit rating of your customers. Lenders will typically offer a bespoke facility based on the variables of your business – usually ranging anywhere from 1 – 3% of the invoice value.

Invoice Factoring requires you to factor and submit all your invoices through the selected lender. The factoring company will manage your sales ledger and collect payments directly from your customer when due, based on the agreed payment terms. They will then deduct the cost of the factoring service before paying you the remaining balance.

This type of facility is ‘disclosed’, meaning your customer will be aware the facility is in place, although it is discreet and not uncommon in B2B business. The benefit of this is that your clients are encouraged to pay on time, as they will be aware it’s a lender managing your credit control. It can therefore help to safeguard your business from late and non-paying clients.

Invoice Discounting is a type of invoice finance where the business keeps the relationship with the customer, and manages their own credit control. You, as business owner, are responsible for following up on unpaid invoices when necessary, allowing you to remain fully in control of any dialogue with your customers. Invoice discounting is often used by larger businesses, who typically pay the lender a fee and a discount charge (interest) based on the funding that is used (similar to an overdraft).

Selective Invoice Factoring is a versatile option that allows a business to release capital for ad hoc or individual invoices rather than having to factor your whole ledger as with other options. It is also known as ‘spot factoring’, or ‘single invoice’ financing. It’s an ideal option if you have a large ad hoc invoice due from a customer and you require capital quickly to assist with your cashflow, particularly if you have already identified how much money you require.

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